Finance Minister Brian Cowen has made the first cut in income tax for six years as he announced the cutting of the higher income tax rate by one percentage point to 41% in today's Budget. This is expected to cost €186m a year.
He also raised the Health Levy threshold by 0.5 points to 2.5% for earners whose income is in excess of €100,100 a year.
The Minister has also raised the personal tax credits by €130 for single people and €260 for married to €1,760 and €3,520 respectively.
He said he will also increase the Employee Tax Credit by €270 to €1,760 a year, while the entry point at which people will start paying income tax is being increased to €17,600 a year - equivalent to over €8.65 an hour.
The Employee PRSI entry point is also increased to that level. The Minister says these measures will remove around 88,000 from the tax net.
He says the measures mean that nearly two out of every five earners will be outside the tax net in 2007 compared to one third in 2004. The cost of these measures is €501m in 2007 and €657m in a full year.
Brian Cowen also said that the 20% standard tax band will be widened by €2,000 a year to €34,000 for single and €43,000 for married one earner couples. The projected average industrial wage for 2007 is just over €33,000.
The Minister said the increases in credits and bands mean that 80% of income earners will continue to pay an effective tax rate of no more than 20%.
Mr Cowen said the threshold for the payment of the health levy will be raised from €440 a week to €480 a week.
The income tax exemption limits for senior citizens aged 65 and over are being raised from €17,000 and €34,000 to €19,000 and €38,000 a year.
Brian Cowen said if the Government get back in office after the general election, it will deliver on its commitment to cut the top rate of tax by another percentage point to 40%.
