Budget 2018: spreading the jam around

Who will the biggest winners be from Budget 2018?

Despite the limited gains for people’s pockets, the spread of winners and losers is always contentious and it will be interesting to see how the Government manages this, both in terms of the final shape of tax and spending measures and how the Budget is “ sold”.

Taoiseach Leo Varadkar and Minister for Finance Paschal Donohoe have focused the pre-budget tax messages on cutting the burden on middle earners and rewarding work.

A widening of the standard rate band, meaning less income is exposed at the higher 40 per cent rate, will be one on the key measures. This is one area where the Irish tax system is out of line internationally and change here is overdue.

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However with just 20 per cent of taxpayers liable at the higher rate, it is a change which will deliver nothing to the majority of taxpayers.

The gains from a USC cut will be more widely spread, with the main 5 per cent rate – expected to be cut – kicking in just below €19,000. The benefits could be spread by also reducing the lower 2.5 per cent USC rate, which would spread the benefit down to those earning €12,000 or more.

However the cash benefits to many from this approach would be tiny. It is also worth watching whether anything happens to claw back any gains from higher earners and whether there is a specific move to start the USC/PRSI merger which could be used to direct gains to the lowest earners.

Much of the bill will be paid for by higher excise duties on cigarettes and possibly fuel and the new tax on sugary drinks. Lower income sections of the population tend to spend relatively more of their cash on these items.

A big increase in commercial property stamp duty has been flagged – it will be interesting to watch if any attempt is made here to keep the rate low on land intended for residential property.

Overall there is a question of balance for Varadkar and Donohoe.They can spread the jam thinly, or focus it in on middle earners, running the political risk of a tax package seen to benefit the better off. Politics, as now constructed, may demand that the gains are spread thinly enough, as Fianna Fail and the Independents push for “wins”.