ANALYSIS:Withdrawal of reliefs, imposition of levies and higher tax take is a sharp reminder that the State is now in the grip of a recession, writes Laura Slattery
THE SEVERE package of tax hikes along with merely modest increases in social welfare benefits will hurt the pockets of almost every individual and family in the State next year, as the recession strikes home.
Child-free, low-alcohol drinking cyclists under the age of 70 will avoid some of the worst of the Minister for Finance's measures; but changes to the payment of unemployment benefits and the introduction of a 1 per cent tax levy on all incomes means no one will escape the brunt of Budget 2009 completely.
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.
The blanket application of this penalty to even very small incomes is the reason why the levy was condemned by trade unions, poverty agencies and organisations representing pensioners yesterday.
High-income workers - people who earn more than €1,925 a week or €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, above which PRSI is not charged.
This abolition would have hit taxpayers who earn more than around €50,000 a year and would not have affected those who earn less than this amount. In the end, the Minister increased the PRSI ceiling only marginally, from €50,700 to €52,000.
However, high-earning self-employed people will be affected by a reduction in the earnings cap on pension contributions if they have left it late in life to start saving for retirement.
Ominously, Budget 2009 was missing the usual range of increases in personal tax credits and the employee PAYE tax credit, both of which remain at €1,830 for a single person.
There were adjustments to the standard rate tax band, which increases by €1,000 for a single person and single-income married couples, and by €2,000 for a dual-income married couple. There was no increase in the home carer's tax credit.
A single person now pays tax at the standard rate of 20 per cent on income of up to €36,400, while the standard rate cut-off point for a dual income married couple increases to €72,800. A single-income married couple pays tax at the standard rate on income of up to €45,400.
State pensions will increase by €7 a week from next year, while other social welfare payments, including the jobseekers' benefits and allowances, will go up by €6.50.
But workers who lose their jobs due to the recession will find that the eligibility for the jobseekers' benefit payment has tightened, with the duration of the payment shortened by three months.
When this payment ceases, unemployed people are eligible for the jobseekers' allowance, which is means-tested.
This was not a good budget for middle-income families. Child benefit rates will not rise next year, while the rate of payment in respect of children aged 18 will halve in 2009 before disappearing completely in 2010.
The Minister hinted yesterday that he was looking seriously at taxing child benefit payments in the future.
There were some compensating measures for these changes for low-income families who are in receipt of other social welfare payments.
Parents of small children will be hit by a change to the early childcare supplement, which will cease when a child turns 5½ years rather than six. Improvements to mortgage interest tax relief for borrowers in the early years of their mortgage will help first-time buyers, but other borrowers will find this tax credit will be worth less to them.
Meanwhile, one of the most valuable tax reliefs available - medical expenses tax relief - has been trimmed back so that it is only available at the standard rate of tax.
This measure will hit higher rate taxpayers, particularly those with children who rack up plenty of doctors' fees and other health expenses.
It was a poor budget for pensioners, with the removal of the medical card for over-70s.
A raft of other indirect taxes, including a €10 air travel tax and an extra 50 cent excise duty on a bottle of wine, will also make life more miserable for consumers in 2009. The top rate of VAT increase from 21 per cent to 21.5 per cent will make many consumer items more expensive.
The other "old reliable" to be hit was cigarettes, but tax on alcohol, apart from wine, will be left untouched.
An 8 cent increase in the mineral oil tax on petrol that kicks in from today and the introduction of a new flat rate levy of €200 on free car parking provided by employers will also make commuting to work more expensive.
It remains to be seen whether employees take up the Government's offer of favourable tax treatment on bikes provided by employers to employees. This, together with the air travel tax, was one of the main "green" measures in yesterday's Budget.
With consumer price inflation increasing at a rate of more than 4 per cent and many households already struggling with escalating food and fuel bills, 2009 looks set to be a difficult year for all.