Since the 1990s, the Department of Finance has annually published a suite of options for ministers to consider ahead of the Budget.
he Tax Strategy Group breaks down the impact and costs of a range of measures, from income tax cuts, social welfare hikes and various other potential spending decisions.
The Government certainly consider the information published in the documents but are not bound by the proposals set out for them by their civil service colleagues.
However, they do make interesting reading and regularly signal the Government’s approach to how they plan to spend our money in the year ahead.
Here we will look at some the key recommendations from this year’s Tax Strategy Papers.
Leo Varadkar’s proposal for a third income tax rate of 30pc would benefit around one million income taxpayers. If the new rate were to be applied to incomes of between €36,800 and €46,800 the gain would be €1,000 a year for single earners and married single-income couples.
Meanwhile, the document shows that the cost of indexing the income tax system at 3pc could see a single person gain €416 a year, or €8 per week. A married, one-earner couple, with no children, would gain €466 per annum, or €9 per week. Two million taxpayers would benefit from this measure.
The paper also looks at an increase of €1,500 in the single income tax standard rate band. This would mean taxpayers could earn an additional €1,500 before hitting the 40pc tax rate. And an increase of €50 in the personal, employee and earned income tax credits is also factored in.
A single earner would gain €400 a year in this scenario, with a married one earner gaining €450. Approximately 1.9 million taxpayers would be better off.
Officials downplayed the prospects of cutting the VAT on new homes to 9pc from the current 13.5pc, something that is allowed under EU rules and builders have lobbied for.
The officials raised fears that having different VAT rates for commercial and residential property would be hard to administer and increase the risk of fraud as well as questioning whether developers would pass on the potential saving to home buyers rather than boost margins.
A lower rate would have to apply equally to home buyers and big investors, they noted.
Cutting VAT to the lower rate would reduce the price of a new home on the market from €300,000 to €288,105, if the rate change was passed on in full.
In the document on the Social Protection Budget package, a number of options are outlined for increasing all welfare rates – such as the state pension, Jobseeker’s Benefit and disability payments – by €15.
The paper says a €15 increase would see a person on a working age payment see their weekly rate increase to €223 while a person on the contributory state pension would see their rate increase to €268.30 a week.
It says a €15 increase in all rates along with proportionate increases for qualified adults and those on reduced rates of payment would cost the taxpayer €1.1bn. A €6.50 per week increase in the living alone allowance, at a cost €78.1m, is also being considered.
The report also warns of a growing black hole in the Social Insurance Fund which funds pension payments. It is predicted the fund will be running a €2.3bn loss in 2030 and €13bn by 2050 before steadily increasing to €21bn in 2070.
It suggests increasing employer and employee PRSI rates by 1.5pc over the next five years. This would mean that the current employee contribution rate of 4pc, which has not changed since 2001, would increase to 5.5pc and the employer rate of 11.05pc would rise to 12.55pc.
It also proposes phasing out the lower rate of employer contribution, which is currently 8.8pc, by increasing it gradually over a five-year timeframe to reach the new standard rate of 12.55pc.
The document looks at a range excise increases on beer, cider and spirits ranging from 1c to 20c and from 5c to €1 on wine.
However, it also notes the Drinks Industry Group Ireland (DIGI) and the National Off-Licence Association called in their pre-budget submissions for a 7.5pc reduction in alcohol excise in Budget 2023 with a further 7.5pc reduction in Budget 2024. The group says this should be the start of a programme of annual excise reductions to gradually bring Irish alcohol excise into line with lower EU levels. It also looks at increasing excise on cigarettes.
There is also a proposal to increasing betting duty by 0.25pc while simultaneously increasing the quantum of tax relief from €50,000 to €65,000 for gambling firms. It notes the Revenue Commissioner expressed concerns with increasing the betting duty relief amount as it will only benefit a limited number of operators and could breach state aid rules.
The Government was also cautioned against hikes in Vehicle Registration Tax (VRT) to encourage car buyers to trade up and speed up electrification. A Tax Strategy Group paper on Climate Action and Tax says representatives for the motor industry have called for time to allow the current VRT system to “bed in”. “In this regard, the Society of the Irish Motor Industry have called for no further increases in vehicle taxation in the current economic climate,” it says.
“They have cautioned against increasing costs for business and motorists, arguing that this will create stability and certainty for both the industry and for motorists.
“In addition, they say that this will encourage car buyers to trade up to a new car which will reduce emissions and speed up the process of electrification.”
It says in particular, the industry has cautioned against the introduction of emissions-based taxes for commercial vehicles.