Budget 2013: what's in store for you

The children may have already started counting down the days to Christmas, but for their parents and grandparents, a less benign countdown is on the agenda. Next Wednesday marks Minister for Finance Michael Noonan’s second budget, and with it a host of spending cuts and tax increases that are expected to total €3.5 billion.

Before we get weighed down contemplating what surprises might be in store, it might be time for some reflection. Since 2007, a series of benefit cuts and tax rises have taken big chunks out of incomes.

Eight new taxes have been introduced (income levy, the universal social charge, carbon tax, second property charge, household levy, domicile levy, pension levy, insurance levy). Budget 2013 is likely to herald at least one more, in the form of the property tax. The impact of these changes has hit taxpayers hard. Take the example of one of our budget families, Elaine and Arthur. On a joint income of €120,000, they have seen net income fall by €545 a month, or €6,540 a year.

Effective tax rates have soared, largely due to the introduction of the universal social charge (USC) in 2009. In 2008, if you were a single person earning €120,000 a year, the average rate of taxation on your earnings was 35.4 per cent – now it’s 42.7 per cent. For a married couple with a dual income earning the same amount, they would have paid tax at 28 per cent in 2007 – now it has jumped up to 33.4 per cent.

Public sector workers have also been hit, as the example of Amelia shows. A nurse, she earns €37,000 a year, but a combination of the USC, tax rises and pension contributions means that her income has fallen by €137 a month, or €1,644 a year.

Cumulatively, the effect of these increases means Ireland now has the 10th highest marginal tax rate on wages (at 52 per cent) of 34 OECD countries. This puts “low tax” Ireland ahead of the likes of France, the Netherlands and the US for taxes on employment. If the rumoured 3 per cent surcharge on incomes over €100,000 comes in, it will raise the top rate to 55 per cent.

In terms of the progressive nature of the changes, the austerity budgets would appear to have hit the nail on the head; those earning more pay more in tax.

However, one major anomaly remains – the level at which taxpayers start paying tax at the higher rate. Thanks to the USC, those earning more than €32,841 now effectively pay tax at the top rate of 52 per cent. That’s a low income threshold compared with other countries. If you lived in the US, for example, you wouldn’t start paying the top rate of 43.2 per cent until you earned €304,714, while our neighbours across the water won’t pay tax at 52 per cent until they earn €186,394.

But to really assess the import of recent income tax changes, it’s worth looking at the total tax mix. A standout statistic since 2007 is how much the Government now relies on one cohort – income tax payers – to fund itself. In 2007, income tax accounted for 29 per cent of total tax revenues; this year, combined with the universal social charge, taxes on employment are expected to hit 42 per cent. This does not compare well when looked at beside corporate taxes. In 2007, businesses contributed 13 per cent of revenues in the form of corporation tax; it has since slid to 11 per cent

Tax increases are being matched by corresponding declines in benefits. Take Keith and Deirdre, for example. With two children, they could have counted on receiving €160 a month for each child in 2007. Since then, however, this benefit has fallen to €140 per child, reducing their annual benefit by €480, and there might be further changes on the way.

But it hasn’t all been bad news. Some pensioners have actually seen their incomes rise since 2007, thanks to an increase in the State pension. In January 2007, the rate for the contributory state pension was increased by €18 a week, up to €209.30, and was subsequently hiked up in both 2008 and 2009 to where it stands today, at €230.30.

Whether or not that will be the case come next Wednesday remains to be seen.

High-income family  Sam owns a business. Salary €175,000

Sam is married, in his early 60s and lives in the Dublin suburbs with his wife Rachel. Sam is a senior executive at a graphic design company which employs 50 staff.

He has three children, two of whom are attending university. Sam's annual salary over the last number of years was €175,000. He is worried about the impact of the introduction of a property tax and the possibility the USC rate for employment earning over €100,000 may be increased from 7 per cent to 10 per cent.

He has looked at the impact successive budgets have had on his income and found his net monthly income for 2007 was €9,319 but this has reduced to €8,223 in 2012, a net monthly income drop of €1,096.

Cohabiting couple Keith and Deirdre, two children. Salary: €90,000

Keith and Deirdre are not married and have been living together for 10 years. They jointly own their family home in Westmeath. Deirdre stays at home to look after their two children, aged four and six.

Keith works as a publican earning €90,000. He has no other sources of income.

The introduction of a property tax is of concern to Keith and Deirdre, as is the possibility that child benefit might be taxed.

Having looked back on his payslips for 2007, Keith finds he is down by €486 per month. His take-home pay in 2007 was €5,014 per month whereas it is €4,528 in 2012.

Single public sector worker Amelia, a nurse is 30. Salary: €37,000

Amelia is single, 30 years old and has been living in an apartment she bought in Kildare. She works as a nurse in Dublin and has earned an annual salary of €37,000 over the last number of years.

Amelia is worried about the impact a property tax is likely to have on her net income. She is looking to buy a home closer to work and her bank has asked for her payslips over a number of years.

When she looks at her payslips from 2007 to date, she sees the impact of the last five budgets on her income.

In 2007, her "net" monthly income was €2,545 and this has reduced to €2,408 in 2012. She is worse off by €137 per month in 2012 than she was in 2007.

Dual-income couple Elaine and Arthur, one child. Income: €120,000

Elaine and Arthur are in their late 30s and live in Galway with their daughter, Emily, aged eight. Arthur works as a recruitment agent and earns an annual salary of €75,000. Elaine runs a creche and has an annual income of €45,000.Arthur is due to change his car next year, so is concerned that there may be an increase in VRT and car tax rates. They are also worried about the possible impact that the introduction of property tax will have on their net monthly income.

Both Arthur and Elaine have reviewed their payslips and noticed how the increasing tax burden has affected them. In 2007, their combined net monthly income was €7,201, but this had reduced to €6,656 in 2012, a drop of €545 per month.

Low-income worker Cleo, a waitress, rents her home. Salary: €19,000

Cleo is single, in her early 30s and living in rented accommodation in Galway. She works long hours in a restaurant and is generally paid at minimum wage rates. Her earnings are €19,000 per annum. Cleo is worried about the impact of the forthcoming budget and has looked at her net income from 2007 to see the impact successive budgets have had on her earnings.In 2007, her net monthly income was €1,542 and this had reduced to €1,473 by 2012, representing a monthly decrease of €69.

Pensioners Jack and Bridie, no mortgage. Income: pension

Jack and Bridie are married and own their home having paid off their mortgage. Jack is in his early 70s and retired while Bridie is about to turn 70. Jack has an occupational pension of €24,000 and also receives deposit interest and the State contributory pension. Bridie receives the State contributory pension. Both have medical cards.Jack and Bridie are worried their State pensions may be reduced or that they might lose their medical cards. They are also worried the Dirt rate may rise.

Payslips and tax statements from 2007 show how the various tax changes have affected both.

While their rates of tax and USC have risen over the past five years, their total combined net monthly income in 2012 is higher than it was in 2007 due to increases in the State pension. In 2007, their net monthly income was €3,683.67 while in 2012 it is €3,707.67, an increase of €24.