Everyone loses out in the toughest budget in the history of the State, writes CAROLINE MADDEN

EVERYONE FROM high-rollers to welfare-dependent families will see their living standards fall as a result of the toughest budget in the State’s history.

Minister for Finance Brian Lenihan doled out the pain to every household in the country in yesterday’s Supplementary Budget, but middle to higher-earners will bear the brunt of the package of tax hikes.

The doubling of the income levy rates to 2 per cent, 4 per cent and 6 per cent, and the reduction of the relevant thresholds, formed the cornerstone of the Budget.

The progressive nature of the levy means that the highest earners will shoulder a proportionately greater burden.

When the new levy rates and thresholds come into force on May 1st, individuals earning more than €174,980 a year will be hit by the 6 per cent rate, while those earning between €75,036 and €174,980 will be charged a rate of 4 per cent.

These higher rates are only charged on the portion of an individual’s income that exceeds the relevant threshold, not on all income.

More workers will also be drawn into the tax net at the other end of the scale as a result of the changes as the entry point for the lowest levy rate of 2 per cent has been dropped from €18,304 to €15,028.

Higher-earners will be hit by the increase in the PRSI ceiling, the level above which the 4 per cent charge does not apply. Minister Lenihan announced that this ceiling will be increased from €52,000 to just over €75,000.

The health levy rates will also be doubled to 4 per cent and 5 per cent on May 1st, and the threshold for the higher rate will be reduced to €75,036. Families with young children were dealt a major blow by yesterday’s Budget. Not only will their disposable income shrink as a result of income and health levy increases, but they will have to budget for the phasing out of the early childcare supplement.

This payment is to be halved on May 1st, and abolished by the end of the year.

It will be replaced in January 2010 by a preschool early childhood and education scheme. Although child benefit payments remained untouched, the Minister warned that this entitlement would become means-tested or taxed in budget 2010.

Homeowners are set to lose out on mortgage interest relief if they took out their home loan more than seven years ago as this relief is now being targeted at those who bought at the peak of the housing boom.

As house prices fall, the Government will review this relief “with a view to eventual abolition”, the Minister said.

Investors also found themselves in the firing line.

The level of tax relief that property investors can claim on mortgage interest on residential rental properties was slashed to 75 per cent of the interest with immediate effect.

Investors also face a much stiffer tax on any capital gains realised as the rate of CGT (capital gains tax) has been increased from 22 per cent to 25 per cent, as has capital acquisitions tax which applies to windfall gains such as inheritances.

Savers were hit by an increase in the rate of deposit interest retention tax (DIRT) as it has risen to 25 per cent, while the rate of tax that applies to life assurance policies and certain investments funds is being increased to 28 per cent.

In addition, a new levy on life assurance policies is being introduced at a rate of 1 per cent on premiums.

Many welfare recipients will have breathed a sigh of relief at the temporary reprieve granted in yesterday afternoon’s Budget as the main social welfare rates unchanged. Yet this situation will be kept under review.

However, recently unemployed young people under the age of 20 will be reeling from the news that their Jobseekers Allowance is to be slashed.

The “old reliables” proved to be easy targets yesterday, with the price of a packet of 20 cigarettes increasing by 25 cent and the price of diesel rising by 5 cent per litre.

Alcohol and petrol were not targeted due to fears that this would result in a loss of revenue due to consumers heading north of the Border. The mooted reduction in pensions tax relief failed to materialise, much to the relief of retirement savers.

The broker network PIBA welcomed the decision to leave pensions tax relief unchanged for the moment.

“Pensions tax incentives play a pivotal role in encouraging people to commit funds to long-term pension savings vehicles,” said PIBA chief executive Diarmuid Kelly. “Cutting them would have had a devastating effect on pension planning.”

During his speech yesterday, the Minister stressed that the tax changes in the Budget were “fair, equitable and highly progressive”, and no doubt hopes to be remembered for taking hard, but necessary, decisions.

However, by scrapping the December bonus for social welfare recipients, his legacy is more likely to be as the Minister who stole Christmas.