Budget 2022 Survey Reveals Strong Support for Indexing of Tax-Rate Bands Despite Confusion on the Issue

Budget 2022 Survey Reveals Strong Support for Indexing of Tax-Rate Bands Despite Confusion on the Issue

The latest installment of the Taxpayer Sentiment Survey series canvasses the opinion of more than 2,200 taxpayers ahead of Budget 2022

·        The government will soon outline their expenditure and taxation plans for the coming 12 months

·        Many taxpayers are unsure what potential indexing will mean for them

Many taxpayers would like the government to include indexing of tax-rate bands in the Budget 2022 announcement.

This is the key finding of the latest Taxback.com Taxpayer Sentiment Survey.

However, the survey also indicated that there is some confusion around what indexing will actually mean for Irish workers.

The survey found that while 37% of taxpayers believe that indexing should be introduced, almost half (45%) of respondents said they didn’t fully understand what the term meant.

In short, indexing - as mooted by Tánaiste Leo Varadkar in recent weeks – refers to raising personal tax bands in line with inflation (currently 2.8%).

It is clear that the prevailing sentiment from the survey is that taxpayers would like the government to speak in simpler terms so that workers can have a better understanding of the impact that decisions made will have.

How tax-rate band indexing would work in practice

Case study

Tony is on a salary of €40,000. If the tax bands were adjusted for inflation by exactly 2.8%, then Tony would see an increase of €197.68 in his yearly take home pay.

However, this news is not as positive as it may sound.

The Consumer Price Index reveals that in the last 12 months alone, costs of transport have increased by 10.2%, while Housing, Water, Electricity, Gas & Other Fuels have all seen a rise of over 7% in prices.

Coupled with this, the cost of Hotels, alcohol and tobacco have also risen by 3.4% and 2% respectively.

As a result, Tony’s capacity to afford these goods and services will likely fall short.

Increasing of the bands will also not have any impact on workers who pay tax at the lower rate (2021 threshold - €35,300 for single individuals). In other words, any index measures introduced will benefit higher income earners only.

One strategy the government could implement to support lower income workers would be to reduce the lower rate of income tax – for example from 20% to 19%. An increase in the personal tax credit would benefit lower income earners by €40. Meanwhile, higher income earners would benefit by €80.

Below is a snapshot of how workers would be effected if the government were to reduce the higher and lower rates of tax by 1% and index the tax rate bands in line with inflation.

Almost 5 in 10 People Say Housing is the Biggest Issue Ahead of Budget 2022

The Taxback.com survey has also found that almost half of taxpayers in Ireland (47%) believe housing should be the biggest issue on the Government’s Budget 2022 agenda, which is almost three times more than those who believe healthcare should take precedence.

Respondents also gave their views on what they believe is the best solution to the challenges faced by First Time Buyer in getting on the property ladder in Ireland. Stricter rent controls to enable would-be buyers to save more emerged as the most impactful measure (33%), and a loosening of the mortgage lending rules to allow them to borrow more followed in second place (21%).

Taxback.com Taxpayer Sentiment Survey

Appendix

Leo Varadkar recently stated that the Government should index personal tax bands each year to allow for the increasing cost of living. (Tax indexing means adjusting the various tax bands to ensure that people are no better off, or worse off because of inflation). Inflation in Ireland is currently running at 2.8% - leaving the bands as they are, will ensure that taxpayers are worse off. Do you think tax indexation should be introduced?

·       45% - I don't fully understand what this is - I'd like if the decision makers spoke in simpler terms so that workers could understand what impact these decisions will have on them

·       37% - Yes, tax indexation should be introduced

·       18% - No, leave the tax bands as they are

What do you think should be the biggest issue on the Government’s Budget 2022 agenda?

·        49% - Housing

·        19% - Healthcare

·        12% - Cutting Income Tax

·        7% - Reducing poverty levels

·        4% - The environment

·        4% - Support for small businesses

·        3% - Increasing welfare payments

·        2% - Increasing public sector pay

Which of the following do you think would have the biggest positive impact in helping first time buyers (FTBs) get on the property ladder?

·        33% - Stricter rent controls – which would allow them to save more money for a deposit

·        21% - A loosening of the mortgage lending rules

·        18% - A grant to allow FTBs to refurbish old homes

·        15% - An extension of the help to buy scheme

·        13% - Property development related measure to encourage and enable the delivery of more new homes