MOST PAYE taxpayers will be better off when the 1996 Budget measures come into effect.
Lower-paid workers who are married will benefit most from the increases in the income exemption limits which will take a total of 18,000 workers out of the tax net. Another 15,000 low-paid workers will be able to claim marginal tax relief and reduce their tax bills because of the £400 increase in the income exemption limit to £7,800.
Middle-income earners will benefit most from the widening of the standard income tax rate band. The £1,000 increase in the 27 per cent tax rate band to £18,800 for married couples will mean a tax saving of £210. This is because £1,000 of their income will now be taxed at 27 per cent instead of the 48 per cent rate. The widening of the band by £500 to £9,400 for single taxpayers will boost take-home pay by £105 before any other Budget measures are taken into account.
A total of 33,000 taxpayers will move from the 48 per cent rate to the 27 per cent rate as a result of the widening of the standard rate income band in the 1996 Budget.
Changes in the operation of the Pay Related Social Insurance system will benefit low-paid workers most. In the current year, the first £50 of weekly income is exempt from PRSI. This amount will rise to £80 a week in the 1996/97 tax year. On its own, this change will mean a saving of £86 for a PAYE taxpayer earning £10,000 but the saving for a taxpayer earning £40,000 will be only £47. This measure will cost £65.4 million in a full year.
The total cost of the widening of the standard rate band, the increases in personal allowances and the increases in income exemption limits will be £87.4 million in 1996 and £150 million in a full year.
However, to ensure that low-paid workers benefit most, Mr Quinn has increased the income ceiling for PRSI contributions from £21,500 to £22,300 and has cancelled the £140 PRSI allowance. The effect of all the PRSI changes on a £10,000 taxpayer will be a £48 increase in take-home pay, while the tax bill of a person earning £40,000 will rise by £60.
The replacement of the PRSI tax allowance with an increase in the weekly "free" income allowance is a progressive tax measure because it ensures that lower-paid workers benefit most from the change. Over 1,000,000 employees will see a reduction of £1.65 in their weekly PRSI contributions, according to the Department of Social Welfare. The removal of the PRSI allowance will save £19.3 million in 1996 and £30.7 million in a full year.
The increase in the income threshold for payment of the health and employment levies will also help low-paid workers. ,The levies, a total charge of 2.25 per cent on annual income, will no longer apply to workers, earning £9,750 or less. This threshold rises from £9,250 in the current year at a cost of £3.9 million in a full year.
Taxpayers with children will get an additional £2 a month for each dependent child from September when child benefit will be increased to £348 a child a year for the first two children and £408 a child a year for subsequent children.
However, for mortgage holders paying tax at the 48 per cent rate, the positive effects of a wider standard rate tax band and an increase in personal allowances will be diluted by measures already in place to cut back relief on mortgage interest to the standard, 27 per cent tax rate.
For a married worker with maximum mortgage relief in 1995/96 earning £30,000, tax will fall from £1,425 this year to £1,226 in 1996/97. By Jim Dunne