'Crude' levy applies to all workers

TAXING PAY:TAXPAYERS WILL face a new 1 per cent income tax levy from January, after Minister for Finance Brian Lenihan announced the most severe budget in two decades.

Higher earners will pay additional tax of 2 per cent on income of more than €100,100 a year under the levy, which the Minister said would be kept under review in light of economic conditions.

"This levy will allow all income earners to contribute in a proportionate manner to the restoration of order and stability to the public finances," Mr Lenihan told the Dáil.

But the levy was condemned yesterday by trade union Siptu, which described it as "a crude instrument that disregards the principle of ability to pay" and said it would "inflict further hardship" on workers. "The imposition of the levy on middle to lower income earners is further exacerbated by the failure to increase tax credits and the inadequate increase in standard tax bands," said Siptu general president Jack O'Connor.

"The 1 per cent levy for all income earners, irrespective of earnings, is particularly harsh," said Bloxham Stockbrokers economist Alan McQuaid, while Irish Taxation Institute chief executive Mark Redmond said the Government had made a major shift in tax policy by bringing every worker into the tax net.

Children's charity Barnardos also expressed concern that families on low incomes were not protected from the 1 per cent levy.

"The outlook is grim for these families who are already identified as being at risk of consistent poverty," Barnardos' director of advocacy Norah Gibbons said.

Unlike normal income tax, the new income tax levy is charged on gross incomes before deductions for capital expenses or pension contributions.

The Government decided to introduce the levy, which applies to all of workers' incomes, rather than increase the top rate of tax. The measure is expected to yield almost €1.2 billion for the exchequer in a full year.

The levy guarantees that lower income taxpayers will not escape the brunt of the tough Budget.

Higher income earners escaped the mooted abolition of the ceiling of income below which PRSI is levied. The Minister decided to make only a slight increase to the PRSI ceiling, from €50,700 to €52,000.

In a tax package that will hit the pockets of almost all workers, the Minister did not make any increases to personal tax credits or the employee tax credit for PAYE workers.

The standard rate tax band - the amount of income that workers can earn before they become subject to the higher 41 per cent rate of tax - was increased by €1,000.

Middle income workers were also hit by a change to medical expenses tax relief, which will only be available at the 20 per cent standard rate of tax from next January. Until yesterday, higher rate taxpayers could claim 41 per cent relief on these expenses.

A new sliding scale of mortgage interest tax relief will benefit first-time buyers in the early years of their mortgages, but the rate of relief for borrowers who are more than seven years into the life of their mortgage will be cut.

Parents and unemployed people also lose out as a result of Budget 2009. There were significant changes to the eligibility and duration of the jobseekers' benefit payment, meaning more unemployed people will have to apply for the means-tested jobseekers' allowance instead.

The quarterly early childcare supplement will cease after five and a half years instead of six years, and child benefit in respect of 18-year-olds will be halved next year before ceasing in 2010.