Minister for Finance Michael Noonan has attempted to ease the burden on the "squeezed middle" of taxpayers by confirming a reduction in the top rate of income tax from 41 per cent to 40 per cent.
He has also increased the entry threshold for the top rate of income tax from its current level of €32,800. Workers will now not pay the top rate of tax until their income passes €33,800.
The top rate band for single-income married couples has also narrowed by €1,000 to €42,800.
Mr Noonan indicated the Government will further reduce the burden on marginal-rate taxpayers over the next two budgets, in a series of measures he says will boost employment.
“Reform starts today by making it more attractive to return to work, to stay in work and to ensure that work rewards individuals adequately,” he said. “A consistent series of reforms, along the lines announced today, delivered over a three-year period, could boost employment levels by as much as 15,000 jobs.”
He said the Government will continue to ease the tax burden on middle-income earners “in a targeted manner, without giving disproportionate benefits to those on highest incomes”.
“The 52 per cent marginal tax rate [which includes the Universal Social Change] will be lowered further while ensuring those on higher incomes continue to pay their fair share,” the Minister said.
Some of the income tax benefits for top earners will be clawed back through the higher USC rates for those on salaries higher than €70,000.
Jim Ryan, a tax partner with EY, welcomed the cut in the top rate. "Everyone is a winner under this budget, however those on lower income will benefit at the expense of those on higher income," he said.
The income tax cuts announced in today's budget will cost the State €405 million in a full year, the Department of Finance has confirmed. Mr Noonan said the full cost of all personal tax changes, including cuts to USC, would be €585 million per annum.
He said he will partly fund the tax cuts by increasing taxes on tobacco and through a previously announced changes to betting taxes.
“I am not raising any other taxes because I am able to fund the costs of these [income tax] reforms and incentives through improved tax revenues arising from economic growth and continued expenditure restraint,” he said.
