No one will take home less but many will see no change

The most substantial monthly pay increase to be enjoyed by any worker next year will be €24 compared to €142 in Budget 2002 At first glance, Budget 2003 looks to have followed the patterns of recent years by increasing take-home pay for almost all employees.

The main difference on this occasion is in the extent of the changes: the most substantial monthly pay increase to be enjoyed by any worker next year will be €24. This compares to a maximum increase of €142 in 2002.

The biggest beneficiaries this time round will be those who earn less than the new PRSI ceiling of €40,420.

This group will gain the maximum from increasing the employee tax credit from €660 to €800, meaning that single workers earning €40,000 or less will take home up to €12 extra per month and their married equivalents will gain an extra €23 per month.

As employees move above the PRSI ceiling, their additional benefits will begin to decline, with the increase in the employee tax credit effectively cancelled out.

Single workers earning an annual salary of more than €60,000 will, for example, see their pay packets expand by just €7 per month.

While no worker is likely to suffer a reduction in take-home pay as a result of the Budget, a number of groups will see absolutely no change in their monthly wages.

As the accompanying table shows, married workers will be worst affected in this regard, with almost all married employees earning less than €20,000 to remain unaffected in pay terms.

In general, however, married workers will gain more from the new measures than their single equivalents. All married workers earning more than €22,500 will receive a monthly take-home increase of at least €12, with many receiving an extra €23 or €24.

Workers must recognise that any increase they do receive as a result of Budget 2003 is likely to be nullified by a lack of movement in the broader tax system.

The Minister chose not to make any changes to tax bands, an approach which, despite allowing greater clarity for economic forecasters, is likely to deliver a negative net result for most workers when inflation is taken into account.

This "fiscal drag" effect occurs when incomes rise with inflation, pushing them into higher tax bands, but the wider tax system does not reflect the movement.

In practical terms, this would see employees paying more tax to reflect their higher wage while, on the flip side, their pay increase is cancelled out by inflation. The net result would be a higher tax bill with no extra net income to reflect this.

To read the table, taxpayers should first select the gross annual income closest to their salary. Next, they should move across to the marital status column that matches their own so that they can work out how Budget 2003 will affect their monthly take-home pay.

The figures under A differ from those under B to reflect the lower rate at which some older public-sector workers pay PRSI.

The impact of increases in child-benefit payments is not included in the table since not all workers will be affected.

While all the modifications contained within the Budget will apply from the start of January 2003, workers are unlikely to see any change in their pay packets until a few months later when the Revenue has updated its systems.

Any overpayment made by taxpayers will at that point be reimbursed.