Income Taxes and Income Tax Options: A Context for Budget 2014

The remaining gap between Ireland’s total government revenue and total expenditure, the budget deficit, sets the context for the fiscal adjustment planned for Budget 2014 (October 2013). Under the terms of Ireland’s Memorandum of Understanding with the Troika (EC, ECB and IMF) that deficit should reach 3% of GDP by 2015. The composition of the adjustment planned in Budget 2014, and indeed Budget 2015, remains a discretionary domestic policy choice. Although there have been some calls for no further adjustments on the taxation side, the reality remains that contributions from both taxation and expenditure measures are unavoidable; it is the scale of each of these that represents the current policy choice. This paper focuses on the prospect of raising additional taxation revenue from the primary source of exchequer taxation revenue, income taxes. In particular, it explores the potential for additional income taxation revenue from individuals and households at the top of the income distribution.

Focusing on these households and individuals the paper demonstrates that options are available to Government for additional revenue generation. While no choices regarding tax increases are simple, or likely to be free from behavioural implications, the options assessed point towards feasible source of revenue open to policy makers as they frame the forthcoming fiscal adjustment.

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