Middle-income earners, pensioners and families with young children are big winners in the budget

Middle-income earners, pensioners and families with young children are some of the big winners in the budget, which announced a raft of tax cuts and welfare increases.

Families across Ireland are set to benefit due to changes announced on Tuesday, with tax savings of about €800 a year for a single earner, or double that for a household with two people working.

And these figures, as shown below, don’t tell the whole story, as households will also benefit from a number of one-off measures, aimed at easing the cost-of-living crisis.

These include a €600 energy rebate, which will be paid in three instalments, one of which will be paid later this year; the double payment of child benefit in November (an extra €140 per child); a reduction of up to 25 per cent in the weekly fee for creches; and a double payment of the €253 weekly State pension in October and again in December.

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Welfare rates will go up by €12 while the State pension will increase to €265, while there was a host of increases announced to ease the energy burden, such as an increase in the fuel allowance.

However, depending on a households’ spending needs, this generous budget may not be enough to maintain living standards, given the winter of discontent ahead on the energy front.

Income taxes

It’s been quite some time since a budget was as generous on the income tax front. Significantly, in an effort to ease the tax burden of middle-income earners, and put Ireland more in line with countries across Europe, where workers only start paying a higher rate of tax on a higher level of income, the Government pushed the standard rate tax band up significantly.

From January 1st, the band will increase by some €3,200, a move that will save a worker on €40,000 some €640 in tax a year, or €53 a month. Married couples with one earner will soon be able to pay the lower rate of tax on earnings of up to €49,000.

If you’re wondering if this is significant, bear in mind that the single-earner threshold rose by just €2,250 between 2018 and 2022, so such a steep move in one year is unusual.

According to Katie O’Neill, senior tax manager with PwC, it means that anyone earning more than €36,800 will benefit from this increase.

In addition, all of the taxpayers profiled will benefit from the increase of €75 in the personal tax credit, as well as the increase of €75 in the PAYE credit.

This means that those on lower incomes, such as Rebecca (see below), on earnings of €22,000, will also benefit in the budget. In addition, also targeting those earning the minimum wage and on lower incomes, the lower universal social charge (USC) rate band ceiling has been increased by €1,625, from €21,295 to €22,920. This means that workers like Rebecca will avoid the higher USC rate of 4.5 per cent altogether.

There was also something specific in the budget for the self-employed, like our hotelier family, as the earned income credit was also increased by €75.

And, stay-at-home parents will benefit from a €100 increase in the home carer tax credit, up to €1,700.

“Overall, a taxpayer earning €40,000 or more in 2023 will be €830 better off as a result of the measures announced in Budget 2023,” says O’Neill.

Also on the tax front, employees who receive bonuses at work, will be able to keep more of this out of the tax net due to an increase in the small benefit scheme, up from €500 to €1,000.

Housing

While there was some good news on this front, it’s unlikely to make a significant impact on families across Ireland.

Firstly, the Help to Buy scheme has been extended, which may help potential house buyers like Tom. And, for renters like Rebecca, the reintroduction of a rent credit, which was abolished back in 2017, will help.

Indeed thanks to the €500 rent credit, which can be claimed for 2022 next year, as well as the €150 increase in personal/PAYE tax credits, her income tax burden will drop from €1,000 to just €350 a year.

However, given the rate of rent at present, €500 a year is unlikely to bring as much relief as might have been looked for.

Similarly, while there was a move to incentivise smaller landlords, such as our high-earning couple Frank and Alison, who have a property with a rental income of €25,000 a year, it may not be enough to stem the departure of some landlords from the market.

The budget means that landlords will be to claim more tax relief on pre-letting expenses, up to €10,000 (up from €5,000 previously). While this is welcome, many individual landlords are likely to be disappointed that the rate of tax they pay on their rental income wasn’t cut.

Profiles

Low-income worker: Rebecca (+€667)

Rebecca is 33 years old. She worked full-time as a waitress and moved out of her family home in 2019 to rent a one-bedroom apartment. She works as a customer service representative for an online retailer and she works remotely from home. Her annual earnings are €22,000.

Single parent public sector worker: Tom (+€641)

Tom is 30 years old and a single parent. He lives and works in north Co Dublin, as a nurse. Tom earns €36,000 a year.

He is paying €1,000 for a two-bed apartment. However, he would like to get on the property ladder soon and is hoping to use the Help to Buy scheme to help get his deposit together.

Dual-income family: Mark & Linda (+€1,043)

Mark is married, in his 50s, and lives in Louth with his wife Linda. Mark is a self-employed hotelier. Linda has a part-time job as a beautician and earns a salary of €23,000.

They have four children, two of whom now live at home. Mark’s annual income over the last number of years was €152,000, which means a combined income of €175,000.

Pensioners: Leslie and Kitty (+€1,344)

Leslie and Kitty are married and living in Cork. They own their family home having paid off their mortgage. Leslie and Kitty are in their late 70s. Leslie receives an occupational pension of €22,000 along with the State contributory pension and deposit interest. Kitty also receives the State contributory pension.

They will see their income increase by €624 each, due to the €12 weekly increase in the State pension, bringing their annual income up to €49,248 from €48,000 at present.

Single-income family: Ellen & Joan (+€705)

Ellen and Joan are in their late 30s. They live in Kilkenny in a four-bed semi-detached house. They have two children aged 13 and seven. Ellen is a pilot. She gave up her job more than 10 years ago when their son was born and has now returned to work. Joan, who used to work full-time in a tech company, now stays at home with their children.

Their annual income is €47,500.

They also receive rent from renting out a room in their home and have boosted their income by €10,000 a year thanks to the Rent-a-Room scheme. This is within the current tax-free limits of €14,000, so they receive this amount, tax free, on top of Ellen’s salary.

High-earning couple: Frank & Alison (+€1,065)

Frank and Alison are in their early 40s with two children. They live in a €1.5 million four-bed detached house they own in Dún Laoghaire. Both Frank and Alison are accountants and earn a combined annual salary of €250,000 with both working from home a number of days each week.

They own a rental property that has an annual rental income of €25,000.