Following a commitment by the Partnership Government to develop proposals for income tax reform by July 2016, the Income Tax Reform Plan was published. The purpose of the plan is to review the personal taxation system that exists in Ireland, and to consider possible options for future reform within the existing system.

The introductory sections of the plan provide a broad overview the current personal tax system and comparisons are made to systems that exist in other OECD countries.

Proposals for reform that are set out in the plan are as follows:

Phasing out of USC

Three options were set out in for the period 2017–2020:

1. A gradual reduction in USC rates (generally by 0.5%) resulting in all individuals with income liable to USC of over €13,000 remaining within the charge; or
2. A gradual increase in band ceilings. For example, by 2019, the 1% band would apply to incomes between €0 and €35,000, 3% band for incomes between €35,001 and €65,000 and the 5.5% band would apply to incomes between €65,001 and €100,100. A phased abolition of the 3% surcharge for the self-employed is also proposed; or
3. An increase in the exemption threshold from €13,000 to €36,000. USC would only be calculated on the portion of income above €36,000.

Mortgage interest relief

This relief is due to expire on 31 December 2017. Three options were put forward:

1. Phase out the relief by reducing the rate of the relief to 75% of the current level in 2018, to 50% in 2019, to 25% in 2010 and nil thereafter.
2. Phase out the relief by reducing the ceiling on allowable interest. Currently the ceiling for an individual is €3,000 and a €6,000 for a couple. It is proposed to reduce the ceiling over three years i.e. to €2,250/€4,500 in 2018, €1,500/€3,000 in 2019, €750/€1,500 in 2020, and Nil from 2021.
3. Continue the relief on a tapered basis for first time buyers who purchased property between 2004 and 2008 only. It is proposed to reduce the relief to 75% of its current level in 2018, to 50% in 2019, to 25% in 2020 and Nil thereafter.

Home Carer Credit

The home carer credit increased to €1,000 in Budget 2016. The plan proposes to further increase the credit by amounts of between €100 and €250 in 2017.

Earned Income Credit

The plan proposes to increase this credit by €550 to €1,100 in 2017 and by a further €550 in 2018 to €1,650.

Tapering of PAYE Tax Credit and Earned Income Credit

The plan proposes tapering out both of these credits for high earners from 2018 by 5% per €1,000 of income. A high earner will be regarded as someone earning more than €80,000 or €100,000 per annum. The credit will fully taper out at income of €100,000 or €120,000 depending on what is regarded as a high earner. The marginal rate within the taper zone would be just over 60%. Once the taper period has expired, the marginal rate would revert back to 52%.