Wednesday 22 October 2014

Noonan hits workers with €264 a year hike in PRSI

Opposition says lower income families will lose out as new measure will bring in €339m for the Exchequer

Charlie Weston Personal Finance Editor

Published 06/12/2012 | 17:00

THE vast majority of workers will pay an extra €264 per year as they are hit by a big change in Pay Related Social Insurance (PRSI).

At the moment workers do not pay PRSI on the first €127 of weekly income. But from the start of next year they will pay PRSI at 4pc from their first euro of income. The measure applies to anyone earning more than €352 a week, or €18,304 a year.

Finance Minister Michael Noonan's alterations to PRSI will cost workers €264.16 a year.

He said the changes announced will bring in €339m a year – but the Opposition complained that lower income families would be the losers.

Mr Noonan also announced that the minimum level of annual PRSI contribution for the self-employed would be doubled to €500 from €253. This is expected to bring in €18m per year.

"Both of these measures will make a fairer link between the amount of contributions and the significant benefits received," Mr Noonan said. For other PAYE workers, unearned income will be subject to PRSI from 2014.

This includes rental income, share and dividend income, plus interest on deposits and savings.

Pensioners over the age of 70 on more than €60,000, will now pay the universal social charge (USC) at 7pc, up from 4pc.

As reported in this newspaper, Mr Noonan announced a three-point increase in USC for those over 70.

The new USC rate for the 70-plus population who have a high pension will apply on income greater than €16,016. This is because the USC is graduated, with different rates applying to different income amounts.

It would mean an individual in their 70s with a private pension of €100,000 would see their USC payment increase by €2,519 a year, according to calculations from KPMG's Nicola Meaney.

But it was the PRSI changes that generated the most criticism, despite the exemptions to people on less than €18,302 a year.

Opposition TDs pointed out that the same hit would be taken by someone on €30,000 as someone on €200,000.

Mr Noonan defended the change, saying PRSI was good value, especially "for those on the lower part of the income distribution, those with shorter contribution histories, and also the self-employed".

He described the changes as "progressive and redistributive because people at the higher end of the income distribution generally get back less than they pay in".

He also announced an extension of PRSI to income from a trade or profession, and unearned income for modified PRSI rate payers from January 1, 2013.

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