With reference to Figure 1 and Extract A, examine the likely impact of the 'freeze on personal income tax thresholds' (Extract A, line 1) on aggregate demand.
| Tax Band | 2024–25 Income Threshold | Tax Rate | 2025–26 Income Threshold | Tax Rate |
|---|---|---|---|---|
| Personal allowance | Up to €15,000 | 0% | Up to €15,000 | 0% |
| Basic rate | €15,001–€45,000 | 15% | €15,001–€45,000 | 15% |
| Higher rate | €45,001–€120,000 | 35% | €45,001–€100,000 | 35% |
| Additional rate | Over €120,000 | 45% | Over €100,000 | 45% |
The freeze on the personal allowance, the basic-rate, and the higher-rate thresholds in Austland will be maintained until April 2029. In times of high wage growth, keeping these thresholds fixed means taxpayers will face 'fiscal drag', paying a larger share of their earnings in tax as their pay rises to match inflation.
The most significant change in the 2025 Budget was the lowering of the additional rate threshold from €120,000 to €100,000 from April 2025. This policy shift is expected to sweep approximately 180,000 middle-to-high income earners into the top tax bracket of 45%.
According to the Finance Ministry, a high-earner with an annual salary of €120,000 will pay an additional €2,000 in income tax annually.
