The earned income tax credit has been increased by €200, bringing it to €1,150. This is still €500 less than the PAYE tax credit of €1,650.

The Government had originally pledged to restore tax equity by building a tax credit for self-employed people that matched that for PAYE workers by 2018, and will now miss that target.

Closing the gap

Although the gap that grew in the previous decade and a half has been meaningfully addressed in the last three budgets, the IFA was insistent that this budget should finalise the process of equalisation, and will be unhappy with this increase, which only closes the gap by one-third.

The earned income tax credit was created in Budget 2016 at a rate of €550, and was increased by €400 last year.

A farmer earning €16,500 will pay €500 more in tax than a PAYE worker on the same wage, as Budget 2018 falls short of fulfilling its fairness agenda in this regard at least.

Tax rates and bands

Minister for Finance, Public Expenditure and Reform Paschal Donohoe also announced cuts to the Universal Social Charge (USC). The threshold between the lower and higher USC rates will increase from €18,772 to €19,372. Between €13,000 and this amount, the 2.5% rate will decrease to 2%. The 5% USC rate for higher income earners will reduce to 4.75%.

Minister Donohoe added that the threshold for the higher rate of income tax would increase by €750 from €33,800 to €34,550.

Additional reporting by Hannah Quinn Mulligan.

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