It is expected workers will be able to earn more before they enter the top rate of tax, combined with a reduction to the flat rate.
Government sources from across the Coalition confirmed to the Irish Independent last night that they are looking at a “hybrid approach” to deliver its well-flagged vow to alleviate the burden of taxes on workers.
Taoiseach Enda Kenny and many in Fine Gael favour a straight cut to the top rate of income tax, from 41 pc to 40 pc.
But the Labour Party are pushing hard that any measures introduced must alleviate the burden for lower- and middle-income earners.
“There is a concern that just doing a straight cut will not benefit those on middle and lower incomes so this is where a blended or packaged approach is coming from,” said one senior Government source.
“A package of measures is now being examined to ensure lower and middle income workers share in the benefit of any measure.”
The Irish Independent has learnt Mr Noonan is to begin intense discussions with his tax officials this week to “run the numbers”.
While Government sources were keen to stress that no final decisions have yet been made on what taxation policies, Mr Noonan’s officials will seek to identify any unintentional consequences that would see any “niche” group benefit or suffer from any tax changes.
“The numbers will have to be run to see that no one group either steels a march on another or is unduly punished by any change in the tax code,” a source said.
Much emphasis has been placed on Mr Kenny’s reference to reducing the marginal rate of tax during a speech last week, but it is now clear a blended approach is now more likely.
Speaking yesterday, Jobs Minister Richard Bruton said that higher rates of income tax that hit people at a very low rate of income are a hindrance to investment.
The higher rate is applied to incomes of above €32,800, which hits many middle-income families hard.
But Mr Bruton warned that we cannot allow a rush of blood to the head to make a decision that we cannot afford.
Last week’s better than expected economic growth figures, which saw GDP rise by 7.7 pc year on year means Mr Noonan has greater flexibility in how he delivers on his promise to lesson the tax burden.
“The burden of income tax is too high and it is my intention to reduce it when the state of the public finances allows me to do so,” Mr Noonan said.
Under new figures released by Mr Noonan’s department, a 0.5pc decrease in the top rate of income tax from 41pc would cost €82m in 2015 and €117m in a full year, and would benefit 700,000 workers. A 1pc cut would cost €164m in the first year and €234m in a full year.
The Government intends to introduce a tax reform plan on Budget day which will set out its aim to reduce the 52pc marginal rate of income tax on low and middle-income earners over a number of years.
But the Government’s budgetary watchdog, the Fiscal Advisory Council, called for cuts of €2bn, even after Mr Noonan signalled this will no longer be the case. The Council warned the financial health of the State remains “vulnerable” and the full €2bn adjustment would still be the best course of action.
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