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Saturday 10 December 2016

How tax policies stack up

Assessing the impact of an FG/Labour coalition

Aidan O'Boyle

Published 01/03/2011 | 05:00

Fine Gael leader Enda Kenny promises to unveil a new budget within 100 days of taking office
Fine Gael leader Enda Kenny promises to unveil a new budget within 100 days of taking office
Labour's Eamon Gilmore will be a likely coalition partner

With the razzmatazz of the election now fading, it is time to turn our attention to the impact of the new coalition on taxation policies.

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Fine Gael

Fine Gael is promising to unveil a new budget within 100 days of taking office. The party's manifesto proposes no increase in income tax or reduction in tax credits and bands. A modification of the restriction on tax shelters for high earners would ensure that they pay at least 30pc tax on incomes of €250,000, down from its current level of €400,000. Tax exiles would be required to spend more time out of the country to avoid the Irish tax net.

The party also suggests an increase in mortgage interest relief for first-time buyers who purchased between 2004 and 2008 but the scrapping of mortgage interest relief for persons buying after June 2011.

In Government, Fine Gael is likely to suspend legacy property reliefs and increase the annual charge on second homes from €200 to €300. The party proposes a temporary levy of 0.5pc of the value of all pension funds and the abolition of PRSI relief on employer pension contributions. Fine Gael also intends to reduce current pension fund thresholds and increase the minimum annual withdrawal rate for Approved Retirement Funds (ARFs) from the current level of 5pc per annum.

It is committed to maintaining the 12.5pc corporation tax rate and the introduction of a bank levy. The party plans to reduce employers' PRSI by 50pc on salaries of up to €356 per week as an incentive to hire unemployed persons.

Fine Gael also intends to increase the standard rate of VAT by 1pc to 22pc in 2013 and 23pc in 2014, and suggests a reduction in the lower rate for services from 13.5pc to 12pc or less for two years. Deposit interest retention tax (DIRT) would rise from its current rate of 27pc to 30pc. Gift tax and inheritance tax would rise from 25pc to at least 30pc and the tax-free thresholds would be reduced by at least 20pc.

Labour

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Labour proposes no tax increase on earnings of less than €100,000 but suggests that earnings over €100,000 be subject to the additional 3pc universal social charge (USC), bringing the rate up to 10pc. This 10pc rate already applies to self-employed persons earning more than €100,000 so it essentially intends that this rate be extended to also include employees earning more than €100,000.

The USC rate would be reduced for others, including working widows and the elderly poor. Like Fine Gael, in Government it would modify the restriction on tax shelters for high earners, which would ensure that they pay at least 30pc tax on incomes over €250,000. The party also intends to impose a similar crackdown on tax exiles.

Labour would also eliminate legacy property reliefs and reduce the amount of interest which can be offset against rental income to 25pc of the interest paid. The annual charge on second homes would be increased from €200 to €500. Labour proposes a cap on the level of tax relief available to both employees and employers in respect of pension contributions, and reductions in the maximum tax-free lump sum and maximum pension fund.

Labour is committed to maintaining the 12.5pc corporation tax rate. The party intends to extend the employer PRSI Incentive Scheme and extend the exemption period by 18 months.

The party plans to increase the standard rate of VAT to 22pc. Gift tax and inheritance tax would rise from 25pc to 30pc on the first €50,000 and 35pc on the balance. There would be a rise in the capital gains tax rate.

Key points for farmers

IFA president John Bryan recently received assurances from the main party leaders that they are not likely to implement the recommendations of the Commission on Taxation to raise taxes on farm transfers.

However, it is likely that capital gains tax and gift and inheritance taxes will increase. You could therefore consider gifting assets to family members before the increases take effect.

As tax relief on pension contributions is likely to be reduced you could consider making pension payments now while top-rate tax relief is available.

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