Answers to the key questions of Budget 2012
Published 07/12/2011 | 07:29
DECLAN O'Luanaigh, of tax specialists BKR International, Ormsby Rhodes, explains Budget 2012.
Q: Who will be worst hit by the tax changes?
A: People who receive passive income - rental income, deposit interest or earnings from stocks and shares - who will be hit by PRSI on those earnings from 2013.
Property investors earning more than €100,000 and availing of special tax shelters will also be hit with a 5pc surcharge.
Apart from that, motorists will suffer through motor and carbon tax hikes while smokers will have to shell out more.
Q: Anyone else?
A: Well, of course, people on social welfare allowances, the disabled, they all got clobbered in the spending cuts.
Q: What will the tax hikes and spending cuts cost an average household on a monthly or yearly basis?
A: For a family with four children, with one parent earning €50,000, it could take €650 a year out of their pockets.
That's €384 in child benefit cuts, €100 on the new household tax, €27 more on car tax, a rise of €75 on the petrol bill, and the rest coming from the VAT rise.
Q: But what about deflation and the lower cost of living we always hear about?
A: Property prices have gone down but most things in the shops haven't. People still think prices are quite dear, despite incomes having dropped dramatically. People are a lot worse off.
Q: What about the changes to the universal social charge putting more money in the pockets of more than 300,000 people?
This targets part-timers. If you're earning €10,000 a year it will be worth about €4 a week. These are not big spenders and this will have no impact on the economy.
Q: Is there any section of society who will be happy with the measures?
A: There was a lot of mention of farmers, but the benefits are not huge. The reduction in stamp duty from 6pc to 2pc on commercial property including farmland makes sense to try and get the market going, but you have to be able to borrow to buy property and the banks aren't lending.
It's the same for the capital gains tax exemption for houses bought by 2013 and sold in following seven years. A cynical way of looking at that, is that the government doesn't see property going up in next seven years.
Q: What was the most significant measure announced?
A: The fact that they decided not to abolish special property allowances, which Fianna Fail said they would do but sent it out to a committee to decide. There were tens of thousands who bought buy-to-lets during the boom, and this measure could save some from insolvency. The big thing was the social welfare changes in the spending cuts.
Q: Will Budget 2012 work?
A: The Government has again ignored the elephant in the room - the cost of civil service pay. Despite the Croke Park agreement, this is the real issue if we are to drastically cut government spending. We are still getting deeper in debt and it has to be addressed. We're borrowing from Germans who are paying their own civil servants half of what we are paying ours.
Q: Will the VAT rise spark a cross-border shopping exodus?
A: This won't make a huge difference, the exchange rate is more important for cross-border shoppers. But goods will be dearer in the Republic and shoppers who are buying less already will buy even less again.
Q: Summing up Budget 2012?
A: It's a scatter gun approach and a further attempt to tax our way out of a mess, which doesn't work. The most significant measures were in the spending cuts, some of which were penal, hitting the poorest people in the country.