REFORMS:IRISH WORKERS will have to pay an additional €2.02 billion in taxes in 2011 as a result of measures to be introduced in the budget on December 7th.
This will be achieved through a combination of income tax increases, the elimination of a variety of tax breaks and a significant reduction in pension reliefs.
In addition, social welfare savings of €760 million will also be targeted along with €100 million in “labour activation measures”. But the Government did not provide any specific details in this area, preferring, instead, to save the details for the budget.
These measures are part of a €6 billion budgetary adjustment next year aimed at reducing the deficit to 9.1 per cent of GDP.
In a bid to stimulate employment in the services sector, the Government plans to cut the minimum wage by €1 or 11.5 per cent to €7.65.
The effective top rate of tax will remain unchanged at 52 per cent – comprising income tax, PRSI and various levies – but tax bands will be widened and credits reduced to generate funds for the exchequer.
The Government plans to raise an additional €1.245 billion in income taxes for the exchequer next year, with the specifics to be outlined in the budget.
This will be the first step in a four-year plan to bring more workers into the tax net.
The entry point to income tax for single PAYE earners will be cut to €15,300 from the current €18,300.
Significant pension reforms will begin in 2011. The Government plans to eliminate the exemptions that apply to PRSI and the health levy next year.
This is the first step in a four-year plan to reduce the relief to the 20 per cent standard rate of income tax.
The cap on the amount of annual earnings that will qualify will also be reduced – by 25 per cent to €115,000 from €150,000.
These measures will net the exchequer €260 million in extra income.
In addition, ex-gratia termination payments and pension lump sums of more than €200,000 will be taxed.
Public service pensioners, meanwhile, face an average 4 per cent cut in their payments in 2011.
This is to reflect the imposition of pay cuts and a pension levy on public servants during the recession. These cuts have not, to date, been applied to those in retirement.
The Government plans to axe 10 tax reliefs next year and to curtail another six to yield combined savings of €355 million in a full year.
Measures to be abolished include the tax exemption for patent royalties, the investment allowance for machinery and plant, and for exploration expenditure.
Reliefs relating to approved share options schemes, and the benefit-in-kind exemption on employer-provided childcare will also go.
The accelerated allowance for capital expenditure on farm buildings for pollution control, and the tax exemption for payments to National Co-operative Farm Relief Services Ltd will be axed.
Tenants in private rented accommodation will no longer be able to claim relief on their income tax and the relief for trade union subscriptions is being scrapped.
Income tax age credits and exemptions will also be phased out over the next four years, starting in 2011.
Of the reliefs to be “curtailed”, the artists’ exemption from income tax will be restricted to €40,000 of earnings.
The breaks on PRSI, health and income charges relating to approved profit sharing and save-as-you-earn schemes; unapproved share options; and share awards are also to be reduced.
The top VAT rate will remain unchanged in 2011 but there will be a rise in excise duties and licences aimed at raising €110 million in a full year.