Abandon health insurance tax relief and end lower VAT rates, Finance Minister Paschal Donohoe says in tax report
Removing tax breaks on health insurance premiums, scrapping lower VAT rates on fuel and new homes and ending the home purchase aid scheme are among the Commission’s controversial recommendations on taxation.
The panel also advised the government to move to a situation where the tax on interest paid on savings in a bank or credit union is the same as the income tax rate, and ending the tax exemption for people who earn when they sell a family home to reduce.
Many of the proposals in the report, which makes 100 recommendations over 12 pages, will irritate middle-income people in particular – because the tough proposals come at a time of crippling cost of living crisis.
Finance Minister Paschal Donohoe is due to present the report today.
One recommendation is that tax relief on health insurance premiums should be phased out over the next few years.
Such a move would cost a family of two adults and two children around €600 per year.
Currently, 2.4 million people in Ireland have private health insurance, or 47% of the population.
Dermot Goode of TotalHealthCover.ie said the removal of premium tax relief would cause a large number of families and young people with barely middle incomes to cope with their plans being reduced or having their coverage dropped. .
This, in turn, would increase the cost of coverage for those who keep their policies.
The Commission’s report on taxation and social protection, which is a medium-term fiscal plan for the next decade, argues that the possible introduction of Sláintecare should dispense with the need for private health insurance.
It is also recommended that the tax on interest paid on savings – Dirt tax – increase massively from its 33% rate to match income tax levels over time. This would mean that people would pay tax on the interest earned on their savings at a rate of around 52%.
Banks and credit unions are currently paying little or nothing on savings as they are inundated with 147 billion euros in household deposits. Such a move is likely to be seen as a deterrent to people acting preemptively by setting aside money to cover rising costs and for emergencies.
Another recommendation is that reduced VAT rates be phased out over time. Its implementation would be extremely controversial.
The standard VAT rate is 23%, but a rate of 13.5% is applied to building and construction services, agricultural contracting services, short-term car rental, cleaning services and maintenance.
The energy crisis led to a temporary reduction in VAT on electricity and gas from 13.5 pc to 9 pc.
But the rate of 13.5 pc has not been reduced on coal and fuel oil. A 9% VAT rate applies to newspapers and sports facilities, and temporarily to the hospitality and tourism sector.
And there is a rate of 4.8% specifically for agriculture.
Food purchased by consumers has a VAT rate of 0 pc.
The committee pleads for the reduced rates to be eradicated over time, with the exception of the zero rate on foodstuffs. He questions the justification for many of the reduced rates.
The removal of reduced rates could mean that the overall standard rate is reduced.
In addition, commission members recommend that the purchase assistance program be allowed to expire. He argues that this creates a distortion and constitutes a perverse inducement.
The program is considered regressive by the commission, as previous research has indicated that many who use it would be able to provide a deposit for a home even if the program did not exist.
And the exemption from
capital gains tax for those selling a family home should disappear, the report recommends.
Currently, if a couple decides to sell and move into a small house, any gain from that transaction is not taxed. The commission believes that this encourages investment in real estate assets.
And there is a recommendation that the non-taxable lump sums that people who retire can take out of their pension should be reduced over time.
However, sources said that recommendation was weak.
Meanwhile, there is no commission support for a universal basic income in the report, as it is seen as too expensive.
It also recommended that the self-employed PRSI rate increase over time from its current level of 4% to 11.05%.
The move would affect up to 331,000 people who are self-employed in the state, including farmers and merchants.
Commission members looked for ways to pay for the rising costs associated with an aging population, particularly pensions and health costs.