Middle classes hit by wave of wealth taxes

THE LEVY on incomes announced yesterday is just one of a number of Budget day measures that will have a disproportionate impact on the middle classes.

Other budget day “wealth tax” measures including the €200 levy on second properties, the departure tax for foreign holidays and reductions in the tax relief available on pension contributions.

Several other measures in the Budget will also have a sting in the tail, particularly for the better off, such as the €200 charge on parking spaces provided by employers in urban areas and possibly the readjustment of benefit in kind on company cars to reflect their carbon foot print.

The increase in the standard rate of VAT by 0.5 of a percentage point to 21.5% will also hit their pockets to a greater extent, given their higher spending power. The decision to withdraw automatic medical cards for all people over 70 and subject them to means testing, will undoubtedly push up the living costs of wealthier retirees, not withstanding the €400 cash payment they will receive in lieu.

Likewise the decision to restrict tax relief that is granted on health expenses to the standard rate, rather than the higher rate as is currently the case, will by definition only have an impact on those who fall into the higher tax bracket.

The increased in Deposit Interest Retention tax, as well as life insurance policies and investment funds, from 23 per cent to 26 per cent also amounts to a wealth tax.

The welter of additional health charges will also fall hardest on those who do not qualify for medical cards.

Mortgage interest relief is also being rebalanced in favour of first time buyers, rather than established home owners. The 1 per cent tax levy applies to all gross incomes, so a worker who takes home a salary of €40,000 a year will pay a levy of €400, a person who earns just €10,000 a year will pay a levy of €100, and so on.

High-income workers – people who earn more than €100,100 a year – will pay a levy of 2 per cent on the balance of any income in excess of this amount. But these higher income earners escaped the mooted abolition of the PRSI ceiling.

The raft of so called “lifestyle” taxes introduced yesterday include an 8 cent per litre rise in petrol tax and a 4-5 per cent rise on motor tax.

The middle classes will also have to fork out more for a bottle of wine, after the Minister imposed a 50 cent increase in excise duty per bottle.

This will be offset by a 50 per cent reduction in duty on low-alcohol beer and cider – a measure designed to emphasise the health benefits of lower alcohol consumption.Meanwhile, the other “old reliable” – cigarettes – will cost smokers 50 cent more per packet of 20.But under a new cycle-to-work scheme, bikes and safety equipment provided by employers will be exempt from benefit-in-kind tax.

How the Budget affects families: pages 8-9, supplement