The State’s tax base is to be widened before 2014 to include people earning as little as €15,300 and income taxes will return to levels last seen in 2006, according to the National Recovery Plan.
VAT is to be increased by 2 per cent; a site valuation tax, eventually costing some €200 per year, is to be levied on some 1.8 million homes; and a range of reliefs and credits are to be curtailed or abolished as part of the taxation measures the Government expects to generate €5 billion between 2011 and 2014.
However, the 12.5 per cent corporation tax, which has come under fire from international competitors since talks on an EU/IMF aid package began, will not be changed.
Some 65 per cent of income tax adjustment will be delivered next year and the Government plan says direct income taxes would make up just 12 per cent of the €15 billion budgetary adjustment.
The plan says the amount of income tax paid in the State has been "eroded to an unsustainable level" and that the overall tax wedge (combined PAYE, PRSI and levies) on average earnings for a single individual will increase from its 2009 level of 28.6 per cent to 33.7 per cent in 2014.
The plan states that it is "not sustainable" to have 45 per cent of working people paying no income tax and that a 16.5 per cent reduction in the value of tax bands and credits will see the entry point for a single person to the PAYE system fall from €18,300 in 2010 to €15,300 by 2014.
It says the rate of VAT is to be increased by 1 per cent in both 2013 and 2014, which the plan says will increase yield by €620 million in a full year.
A site value tax, to be introduced in 2012, will cost households €100 per annum in its first year and is likely to rise to an average of €200 per household when a value-based addition is introduced in 2013. This is expected to be levied on 1.8 million homes and 700,000 areas of zoned land and should generate €530 million per year.
The plan proposes the doubling of the carbon tax from €15 to €30 per tonne by 2014 which would generate more than €300 million over the four years.
The measures in the plan will be the equivalent of a reduction of 16.5 per cent in the value of tax credits and bands which the Government believes will rebase the income tax system at approximately 2006 levels.
Rate of income tax relief on pension contributions is to fall from 41 to 34 per cent in 2012, to 27 per cent in 2013 and 20 per cent in 2014. This will give an annual reduction of €165 million or a cumulative reduction in pension tax expenditures of €700 million.
It proposes the abolition of 10 tax expenditures that will save €280 million in a full year. These include rent relief, relief on trade union subscriptions and income tax age credit for people aged 65 and over.
A further six measures, including artists income tax exemption and the tax-free status of ex-gratia payments and pension lump sums of more than €200,000, are to be curtailed saving a further €75 million.
Home loans taken out on or after January 1st, 2013, will no longer qualify for mortgage interest relief, which is to be abolished completely by 2018. This will generate full year savings of €485 million.
"Any acceleration of the withdrawal of interest relief would place unacceptable financial pressure on households with the highest risks of being in negative equity," the plan states. "There will be no change to current arrangements."
The plan states that the Government remains "steadfastly committed" to the retention of the 12.5 per cent corporate tax regime which it regards as a "cornerstone of industrial policy".
Reliefs and exemptions from Capital Gains Tax, Capital Acquisitions Tax and Stamp Duty will be abolished or greatly restricted to ensure there is an adequate base for these taxes. The report says a cautious estimate is that these measures will yield €145 million in a full year.
The Irish Taxation Institute said the measures broaden the tax base to a more sustainable level for the future and bring Ireland's tax system more into line with the OECD average across a range of income levels.
