TAXPAYERS will bear the brunt of the toughest Budget in living memory as Minister for Finance Brian Lenihan focused on raising revenue rather than cutting spending.
Income levies form the centrepiece of the Budget with a doubling of the rates introduced last October and a significant reduction of the thresholds.
Taxpayers earning between €15,028 and €75,036 will pay a 2 per cent income levy, those earning between €75,036 and €174,980 will pay 4 per cent, while those earning more than that will pay 6 per cent.
On top of that the health levy has been doubled to between 4 per cent and 5 per cent and the PRSI ceiling has been raised significantly so that workers will pay the charge on all income up to €75,036 compared to €52,000 at present.
New levies on insurance policies, the phasing out of mortgage interest relief after seven years and the abolition of the early childcare supplement at the end of this year will impose added burdens on some of those already hit hard by income levies. Dirt tax also goes up.
For public servants the range of levies and charges comes on top of the pension levy of up to 10.5 per cent of their income.
Mr Lenihan told the Dáil that fairness was the cornerstone of the emergency Budget with a person on the minimum wage of €17,500 a year being asked to pay 2 per cent of their wages, someone on €50,000 paying 4 per cent of theirs and a person on €300,000 being hit for 9 per cent of their income.
“We are now facing the challenge of this nation’s life,” said Mr Lenihan, who appealed to people to set aside sectional interests. “Now is the time for the common good to prevail,” he added.
A single worker (and a single-income married couple) earning €40,000 a year will see their take-home pay reduce by approximately €100 a month, while their counterparts earning €60,000 and €80,000 will be €174 and €283 a month worse off respectively.
A single worker (or a single-income married family) earning €100,000 a year is down €384 a month. These figures are based on a full-rate PRSI contributor.
Once gross annual incomes exceed €60,000, the monthly reductions in take-home pay increase sharply due to the higher PRSI ceiling.
People who earn in excess of €75,000 face even steeper cuts in take-home pay as a result of the lower entry level for the middle-rate income levy and the higher rate of the health levy.
Fine Gael deputy leader and finance spokesman Richard Bruton said ordinary families were being hammered by the Budget. The total package of tax changes and spending cuts announced yesterday comes to €3.3 billion for the rest of this year. Extra taxes account for €1.8 billion of the package with cuts making up the balance of €1.5 billion.
Mr Lenihan also announced changes in pay and conditions for politicians, including the abolition of increments for TDs as well as pensions for former ministers who are still in the Dáil. He also announced a a further reduction in expenses and reduced allowances for committee work. Former taoiseach Bertie Ahern could lose over €117,000 a year as a result of the changes.
The Budget measures come on top of the €1.8 billion in savings, including the public service pension levy, which were announced in February. “The problem is our expenditure base is too high and our revenue base is too low. If we fail, refuse or neglect to address this structural problem we will condemn our generation and the next to the folly of excessive borrowing,” Mr Lenihan said.
He said that next year he would be seeking an additional €1.75 billion from taxation and in 2011 the target will be to raise another €1.5 billion.
Mr Lenihan said the options for raising this revenue may include taxation of child benefit, a form of property tax, introduction of a carbon tax and broadening of the tax base through elimination of reliefs and a review of tax-exempt income.
In the short term, he announced the Christmas bonus for social welfare recipients will not be paid this year while the jobseeker’s allowance for those under 20 will be reduced from €204 a week to €100.
There were limited changes in excise duties with a 25 cent increase on a packet of cigarettes and a 5 cent rise in a litre of diesel but no extra tax on petrol, beer, spirits or wine.
Mr Bruton criticised the reliance on extra taxation and said the Budget would do nothing for job creation. “Many families will be brought to their knees by the taxes and levies imposed in this Budget. Fine Gael proposed a savings programme of €3.5 billion split one-third on tax increases, two-thirds on spending controls.”
He accused the Government of taking a €90 billion gamble on behalf of the taxpayer in bailing out property speculators and banks that dragged the economy over a cliff in the last few years.
Labour’s deputy leader and finance spokeswoman Joan Burton said the Taoiseach had thrown away the political capital he started with last year.
Main measures
TAX
Mortgage interest relief on principal private residence limited to first seven years of the mortgage.
Income levy rates doubled to 2 per cent, 4 per cent and 6 per cent. Thresholds lowered, with the 2 per cent rate kicking in at €15,000, 4 per cent at €75,000 and 6 per cent at €175,000.
Capital Gains Tax and Capital Acquisitions Tax (CAT) will both rise from 22 per cent to 25 per cent. CAT thresholds lowered by 20 per cent.
Excise duties on cigarettes and auto diesel will rise by 25 cent and five cent respectively from last night.
Ceiling for employee PRSI to rise from €52,000 to €75,000.
Dirt rises from 23 per cent to 25 per cent. The levy on non-life insurance premiums rises from 2 per cent to 3 per cent, with new 1 per cent levy on life policies.
EXPENDITURE
Capital spending to be cut by €1.3 billion in 2010 and €2.4 billion in 2011.
Public sector pay and welfare spending to account for two-thirds of all spending.
Jobseeker’s allowance for those under 20 halved.
Early childcare supplement replaced with free early childcare and education year for pre-school children.