For the first time, the Department of Finance published its annual study of budget tax options before the package was delivered. In previous years it was only published afterwards. In what senior officials said was an exercise in "total transparency", now the options are out on the table. They present some key questions for Minister for Finance Michael Noonan and his colleagues.
Key questions
1. Should most of the spare money be spent on USC cuts? The Department of Finance outlined three options which involved significant USC cuts over the next three budgets. This would be in line with the Government commitment to move towards abolishing the charge over a longer period. However, this would consume most of the money allocated for tax cuts over the three years – and would probably require more money to be raised elsewhere.
For example, there is an estimated €330 million for tax cuts in budget 2017, and the option outlined by the department would involve spending €300 million of this on USC cuts. More money could be raised from other areas, but the Government also has commitments to cut other taxes .
2. How should USC be cut? The Department plan outlines three separate options for reducing the tax over three years. One involves cutting the USC rates and the others are a mixture of adjusting the income level at which different USC rates apply. These have different impacts on various levels of income. If the Government wants to sell its message that the USC will be abolished, it has to decide on some kind of multi-year plan.
3.What other income tax changes can it afford? The Department's options assume that the Government will also increase the home carer's tax credit – from €1,000 to €1,200 – and continue to increase the earned income tax credit, a credit for the self-employed to match the PAYE credit given to employees.
4. How will it take money back? The Government has promised to adjust the PAYE tax credit – and presumably the earned income tax credit – to claw back some gains from the USC cut from the higher paid. The crucial decision is the income level at which this will be phased in, probably somewhere between €75,000 and €100,000. The documents also suggest that PRSI might apply at lower income levels, to partly offset USC cuts for low earners. All these clawbacks will be controversial in a package where there is not much cash to spare. It also has to decide whether to press the button on the introduction of the new tax on sugary drinks, which could raise €100 million a year.
5. What to do about mortgage interest relief? The Programme for Government promises to extend this beyond its current 2017 end date. No new mortgages taken out since 2013 have qualified for relief, so extending the phase-out date for earlier mortgage holders may not be popular with those who did benefit.
6. How to meet commitments to cut capital taxes? The Government has promised to cut capital gains tax for entrepreneurs and also to reduce capital acquisitions tax for those inheriting money from parents. Meeting the commitment to cut CGT on people selling companies to 10 per cent up to a limit of €10 million would cost €65 million.
Increasing the CAT threshold for so-called Class A – parent-to-child inheritances – from €280,000 now to the promised level of €500,000 would cost €75 million. Both could also leave the Government open to accusations of targeting the better off.
