The Tax Strategy Group paper on income tax has examined the issue of refundable tax credits.
This is when those on low incomes do not earn enough to use up all of their available tax credits. A change would allow these taxpayers to receive the value of the unused credits.
The Tax Strategy Group is comprised of officials and advisors from across different government departments.
It’s chaired by the Department of Finance and examines possible options when it comes to taxes in the upcoming Budget.
The papers are published annually in advance of the Budget.
The arguments for introducing refundable tax credits include helping those at risk of ‘in-work’ poverty and making the income tax system more equitable. It could also be used to provide additional income for those out of work.
Arguments against say the income tax system is for raising revenue. This is separate from the social welfare system which provides income supports and a safety net for those in need.
The paper argues that the social welfare system is simpler and more effective than the taxation system in delivering supports to low income households.
The report says that those who might benefit from refundable tax credits already benefit from the Working Family Payment. It also points out that Ireland’s tax system is already highly progressive where those who earn most pay the most in tax.
It also mentions the National Minimum wage and the commitment to move towards the National Living Wage by 2026.
The paper says refundable tax credits might boost incomes in the short term but ‘may not offer long-term solutions to low pay and poverty.’
The cost of refundable tax credits is estimated, based on previous reports, to be between €1.3 and €2 billion.
“A tentative estimate provided by Revenue suggests that the cost of refundable tax credits would be in the region of €1 billion, however, further analysis of this costing would be required,” it adds.
There are also concerns expressed that it could act as a disincentive to work.