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Government says income tax won’t change in Budget

The Minister for Finance has confirmed that the Government does not plan to make any changes to income tax, USC or PRSI in October’s Budget. 

Paschal Donohoe said it is the view of the Government that it needs to hold the personal tax code steady and use it to respond back to the challenges facing the economy. 

“There may well be decisions that we need to make in the future in relation to social insurance in Ireland,” he told journalists during an online press conference today. 

“But if I look at where we are moving into 2021 there is a heightened air of economic uncertainty and this Government wants to give confidence to those who are earning income or who have a high level of deposits within our economy for this year and for next year,” Minister Donohoe said. 

“After Budget 2021, future budgets that we make will be guided by the commitments we have in these areas in the Programme for Government,” he added. 

Mr Donohoe said the opening position before the Government makes any additional policy decisions for 2021 is that the Exchequer will have a deficit ranging between 4.5% and 5.5% of national income or in borrowing terms of €15-€19 billion. 

He said the budget would be framed against the central planning assumption of the continued presence of Covid-19 in Ireland across most of next year and that there will be a no trade deal Brexit. 

The main priority of Budget 2021 will therefore be management of the Covid crisis and Brexit. 

But the Government also wants to target any further measures on issues prioritised in the Programme for Government, particularly housing, health and climate change. 

A recovery fund will also be put in place to allow the State respond to issues that emerge during 2021, but no decision on its scale has been made.

Minister for Public Expenditure and Reform Michael McGrath said spending this year looks set to be up 23% above the level envisaged at start of the year due to Covid-19 related measures, such as the Pandemic Unemployment Payment, extra health spending and the wage subsidy schemes. 

He said he is currently trying to untangle with officials how much of that spending might be necessary again next year for issues such as schools, additional places in third level, changes to public transport and demand on the health service. 

He added that there are certain expenditure measures that have been committed to, such as public sector pay and demographics, as well as pressure in demand led schemes. 

Capital expenditure though will increase next year to €9.2 billion, he said, adding that a review of the National Development Plan is taking place. 

In relation to the carbon tax, Mr Donohoe said he does intend to repeat the change in carbon tax made in last year’s Budget and use the revenue from it to reinvest in ways that will make a difference to climate change and to mitigate the impact of carbon tax on vulnerable people. 

In terms of borrowing on international markets, Mr Donohoe said there would be a borrowing strategy for next year in place by the time the Budget is delivered.  

In the first half of next year a medium-term borrowing strategy would then be published outlining how the deficit will be reduced over time, he said.

Minister McGrath said no decisions have been made yet on core social welfare rates. 

He also said significant resources would be allocated to deal with the fall out from a no-trade deal Brexit.

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