Politics

Coalition considers tax benchmarking to lure emigrants

Move would pave way for Irish system to fall into line with competitor countries

Minister for Finance Michael Noonan: Focus would be on middle-income groups, defined as those earning between €32,800 and €70,000. Photograph: Bryan O’Brien/The Irish Times
Minister for Finance Michael Noonan: Focus would be on middle-income groups, defined as those earning between €32,800 and €70,000. Photograph: Bryan O’Brien/The Irish Times
Fiach Kelly
Fri Feb 06 2015 - 01:00

Reform of the income tax system to encourage emigrants to return home is being considered by the Government in the run-up to publication of the spring economic statement.

Under the plans, the tax system would be benchmarked against countries such as the UK, Australia, US and Canada.

The initiative, which would focus on the marginal tax rates and middle-income earners, is aimed at encouraging emigrants to come home as the economy improves. Ireland’s tax competitiveness, especially on personal tax, has been identified as an issue to be addressed.

The overall marginal rate, combining income tax, the Universal Social Charge and PRSI, is at 51 per cent.

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The benchmarking focus would be on middle-income groups, which Minister for Finance Michael Noonan has defined as those earning between €32,800 and €70,000.

The proposed benchmarking could be unveiled as soon as the spring economic statement in April. It would pave the way for the Irish system being gradually brought into line with competitor countries.

Road map

However, it is not clear if both Fine Gael and Labour are agreed on the proposal.

There are also differing approaches within the Coalition as to the length of time for which the spring statement will lay out strategies in areas such as jobs, banking and tax. Fine Gael favours a five-year plan, while Labour wants a shorter, three-year road map.

The statement, which is still under discussion, will formally commit the Government to reducing the budget deficit and achieving full employment by 2018.

Mr Kenny has said while it will not be a "budgetary statement" it will "set out a strategy" for the coming years in areas such as employment, tax and banking. It will not contain tax decisions but will outline broad targets for structural reform in the years ahead.

In last October’s budget, the higher rate of tax was reduced from 41 to 40 per cent and the threshold at which it applied rose from €32,800 to €33,800.

Speaking last year, Mr Noonan said: “If you take the tax rate that a young Irish professional or a young Irish building worker pays in London, they won’t go into the higher rate until they are at in excess of £150,000 (€190,000), they go into the higher rate here at €32,800.”