No changes to personal tax bands and credits are planned for next week’s budget, meaning the effective reductions in income tax – worth more than €1,000 to many workers in recent budgets – will not be repeated this year.
Not indexing income tax bands and credits will mean workers who receive pay increases will end up paying more in tax than they would if the Government increased the thresholds and credits as it did in recent budgets.
According to several people with knowledge of the process, there are no plans to expand the size of the tax package – announced in July as €1.5 billion – and it does not currently include measures on personal income tax.
Although final decisions have not been made on the budget, sources familiar with the discussions say the cost of the expected VAT cut for hospitality, a reduction in VAT for apartments, the continuation of the renters tax credit and the lower VAT rate for gas and electricity all mean the Government will have no room for changes to income tax.
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According to one person with knowledge of recent discussions: “There is no space at all to do a personal tax package.”
On the spending side of the budget, a series of fraught bilateral meetings between the Department of Public Expenditure and delegations from the spending departments is continuing with sources around Government suggesting widespread unhappiness among Ministers.
[ Ministers in fraught negotiations over tightest budget in yearsOpens in new window ]
One Minister was said to be seeking support from backbenchers at Leinster House on Wednesday night to increase his allocation. Two senior officials from different departments who spoke to The Irish Times were critical of the process, with one warning of the potential political fallout from the tight budget allocations.
Minister for Health Jennifer Carroll MacNeill signalled the health service cannot expect to receive the same level of funding increases as it had over recent years.
She said between 2020 and 2025 health spending increased by 35 per cent – from €19 billion to €26 billion.
“It is clear that we cannot continue to grow the health budget or any budget at that rate and maintain the security of the public finances,” she told the Oireachtas Committee on Health.
The cross-party Committee on Budgetary Oversight, meanwhile, published its pre-budget report, highlighting warnings made by the ESRI, the Fiscal Council, Nevin Economic Research Institute and others that the proposed €9.4 billion budgetary package “poses a risk of overheating the economy”.
The committee recommended the Government “adopt a countercyclical approach to budgetary policy” and welcomed “the move away from once-off measures to permanent targeted cost-of-living measures”.
Separately, Opposition parties have begun outlining their alternative budgets, with the Social Democrats promising significantly increased spending, paid for by €3.45 billion in tax increases.
Sinn Féin and Labour will announce their proposals on Thursday.
