[ANALYSIS] Labour’s tax refund or PN’s tax credit?

Highest earners stand to gain from PN’s tax proposals as the only real beneficiaries are those earning €80k or more.

The PN manifesto indicates that a new PN administration would not be paying tax refund cheques any longer. This would mean a significant loss to many households. These cheques at their maximum amount to €125 for single taxpayers, €135 for parents and €140 for married tax parents.

As an alternative to these cheques the PN is offering a 10% tax credit on tax paid the previous year by those earning up to €20,000, a 5% tax credit for those earning between €20,000 to €40,000, and 3% for those earning from €40,000 to €60,000.

Of course, a tax credit defined as a % of tax paid means that those with lower incomes and who pay less tax get much less in their pockets than someone earning more than them.

Let us take for example someone on the married rate who earns €12,000. This person currently pays no tax, and therefore would get no tax credit. This person would however lose the €140 tax refund cheque, thus, ending up €140 out of pocket.

Now take a single person earning €14,000. This person would lose a tax refund cheque of €125, and instead gain a tax credit of €43.50 (10% of the €435 tax bill). On a net basis, this person is €82 worse off.

Finally take a single parent earning €16,000. This person loses a tax refund cheque of €105 to gain a tax credit of €84.50 (10% of the tax bill of €845). This person will be €21 out of pocket as a result of the PN’s proposed tax policy.

In a nutshell anyone earning less than €15,000 will be worse off with the PN’s tax proposal. The worse impacted are those with income below the tax threshold, as they would lose the tax refund and gain no tax credit.

For a parent to start not to lose money as a result of the PN proposal they need to earn €17,000 or more. For someone on the married computation, anyone earning less than €25,000 would be worse off.

This means that 115,000 individuals will be worse off because of the PN’s tax proposals.

Those earning more will make some gains with the PN’s tax measure. However, anyone earning between €15,000 and €30,000 will only see little more than €100 in net income. This is about three times less than the average €300 benefit that taxpayers will be getting from the Labour proposal.

The table below shows that Labour’s tax proposal is clearly superior to the PN proposal in terms of its overall generosity. Moreover, the PN proposal goes against the principals of social justice as it takes from those on low incomes to give some benefits to those on above average incomes.

A married person earning €61,000 would gain €100 under the PN’s proposal as against €255 under Labour’s measure. By contrast, a single parent earning €12,000 would gain €280 with Labour’s policies and lose €113 with the PN’s suggested measure.

The only real beneficiaries of the PN’s tax proposal are those earning €80,000 or more. These individuals will be earning €2,000 or more from this measure, as they would start paying 25% on their income between €60,000 and €80,000 instead of the current 35%.

Labour would give these higher income individuals a tax cut of €255, which is below the average tax benefit. Instead, the PN would take the tax refund cheque from those on low to middle incomes and instead give high income earners a €2,000 tax cut.

The cherry on the cake of this proposal is that the PN declare that five years after introducing this reform, they want to lower the top tax rate to 25% on all income. So, someone earning €100,000 would make a saving of €2,000 now, and then in five years his savings would go up to €4,000. By contrast a married person on the average wage under the PN’s proposal would not be getting any tax saving at all.  

The PN proposal translates into a tax rise for those on low to middle incomes and a tax cut for those on top incomes. On the other hand the PL proposal  means a tax cut for all, but a stronger one for those on low to middle incomes.

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