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Monday 26 September 2016

So how was it for you?

Despite last week's so called 'giveaway' Budget most of us are still worse off than we were following the last big 'giveaway' Budget in 2007

Published 18/10/2015 | 02:30

Budget cartoon
Budget cartoon

Most of us are still worse off under Budget 2016 than we were in 2007 - despite the so-called pre-election 'giveaway' Budget unveiled by Finance Minister Michael Noonan last week, an analysis by the Sunday Independent has found. Some of us are still thousands of euro a week worse off than we were in 2007; some of us are still hundreds of euro a week poorer.

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"Many of us are still worse off than we were seven years ago - and it will take a number of similar 'giveaway Budgets' just to get us back to where we were in 2007," said Pat O'Brien, executive director with Ernst & Young (EY).

There were a lot of good things in the Budget - the cuts to the hated USC, the tax credit for the self-employed, two years free pre-school, and free GP care for under-12s to name a few. However, the property tax still remains intact. So too do water charges. There has been a tiny increase in the amount which children can inherit tax-free from their parents - which means it is still impossible for many children to inherit the family home tax-free.

Last week's Budget was described as one which would make it worth people's while to work. More than anything, it is take-home pay - that is, the amount of earnings you are left with after paying tax, which makes it worth your while to get up for work in the morning.

So when it comes to take-home pay, how much worse or better off are you under Budget 2016 than you were in 2007? The Sunday Independent teamed up with experts at PricewaterhouseCoopers, Deloitte, KPMG, EY and the Irish National Organisation of the Unemployed (INOU) to find out.

We also checked how take-home pay compared to 2012 - which for many people was the low point of the recession. Most of us - bar struggling farmers and single mums on welfare - are still worse off now than we were in 2007. However, most of us - bar the mega rich - are better off than we were in 2012.

Reluctant landlords

€73 a week worse off than 2007 €15 a week better off than 2012

You're a married couple in your early 30s. You have no children. Only one of you has a job. The working partner, an engineering manager, earns €70,000 and has not had a pay rise in over 10 years. The other partner spends a lot of time dealing with the cranky tenants who rent out a property you jointly own.

This property, which is near Dublin city centre, was your first home but you have since traded up. As you were in negative equity at the time you traded up, it did not make financial sense to sell your original home - hence you decided to rent it out. You have been receiving rental income of €15,000 a year from this rental property since 2007. So your total earnings as a married couple come to €85,000.

You will still be worse off as a couple once the Budget changes kick in next year than you were in 2007. Back in 2007, you took home €62,463 a year - about €1,201 a week - after tax, according to Alison McHugh, director of private clients with Deloitte. Under Budget 2016, you will take home €58,668 a year - about €1,128 a week - after tax.

So you'll still be €73 a week worse off next year than you were in 2007. This is because your tax bill - including income tax, PRSI and the then health levy - came to €22,537 in 2007, according to Ms McHugh. That tax bill (including income tax, PRSI and the USC) will stand at €26,332 next year.

However, your take-home pay for 2016 will be a bit better than in 2012. Your take-home pay after tax in 2012 was €57,873 - about €1,113 a week. So next year, you'll take home €15 more a week than you did in 2012.

Tech geek with itchy feet

€183 a week worse off since 2007

€27 a week better off than 2012

You've been a tech genius since your teens and you were snapped up by a major multinational shortly after you left college. You've been earning €150,000 a year since 2007. You love your job but you're fed up losing more than half of your income to tax - so you're considering moving abroad. You're single, in your late 20s, and you have no children - so you've nothing to hold you back.

Despite the cuts to the USC, you're still almost €10,000 a year worse off under Budget 2016 than you were in 2007. You'll take home €84,518 after tax next year - but back in 2007, you took home €94,040, according to Ms McHugh. That means you will be about €183 a week worse off next year than you were in 2007.

The USC and PRSI are the main reasons your earnings have dipped so much. At €6,000, you'll pay about three times as much PRSI in 2016 as you did in 2007, according to Ms McHugh. You're also among the workers who gets hit hardest by the USC. As your pay package is more than €70,000, you must pay the top 8pc USC rate announced in last year's Budget. Minister Noonan made no moves to alleviate the 8pc USC rate. This means that more than half of your income is still being hit by the 8pc USC rate. In total, you'll lose about €9,500 of your income to the USC in 2016.

Between the USC, income tax, and PRSI, you're still paying 52pc tax on a good chunk of your income. "The marginal rate of tax remains at 52pc for those earning over €70,000 - one of the highest in the OECD," said Ms McHugh.

You're only €1,385 a year - about €27 a week - better off than you were in 2012.

Squeezed middle income

€74 a week worse off than 2007

€38 a week better off than 2012

You're a married couple in your early 40s with three teenage sons. One spouse, who works full-time as the manager of a food store, earns €70,000 a year. The other spouse earns €40,000 as a part-time accounts assistant. You paid €600,000 for your home at the height of the Celtic Tiger - but you'd be lucky to get €400,000 for it today. You have little disposable income by the time your mortgage and bills have been paid. You're paying €765 a year in property tax - even though you paid €36,000 in stamp duty when you bought your home. Your three children are a constant drain on your finances.

At €77,084 a year - or €1,482 a week, your take-home pay after tax next year will be almost €4,000 less than it was in 2007. You took home €80,915 a year - or €1,556 a week - back then, according to Ms McHugh. The USC is the main culprit here. You'll lose about €4,600 of your joint income to the USC next year. In 2007, you lost €2,200 of your income to the health levy - the only tax levy at the time.

However, the worst appears to be behind you as you'll be about €2,000 better off next year than you were in 2012. Your take-home pay after tax came to €75,067 in 2012 - or €1,444 a week.

Gay couple who tied the knot

€74 a week worse off than 2007

€38 a week better off than 2012

You're a gay couple in your 30s who registered your civil partnership in 2011 - the year the law was changed to allow gay people enter into civil partnerships. You have been together since 2007. One of you earns €70,000; the other earns €40,000. You own your own home. You have no children.

At €77,084 a year - or €1,482 a week, your take-home pay next year will be €3,831 less than it was in 2007, according to Ms McHugh.

You will however, be €38 a week better off next year than you were in 2012. Your take-home pay after tax came to €75,067 in 2012 - or €1,444 a week.

As you've been in a civil partnership since 2011, you've been entitled to the same tax advantages as a married couple since then. (In 2007, you paid tax as two separate individuals as you were not in a civil partnership at the time.)

Your take-home pay after tax for 2007, 2012 and 2016 however, works out the same as it would have been for a married couple on the same income for those years.

"In 2007, the couple paid the same tax as they would have done even if they were entitled to be treated as a married couple in that year also," said Ms McHugh.

This is because the income you have each earned since 2007 meant you were already getting the full benefit of the standard rate tax band (which allows you to earn a certain amount of income before getting hit for the higher rate of tax) as well as all the tax credits you were entitled to, according to Ms McHugh.

Married couples and couples in a civil partnership do have tax advantages over single individuals when it comes to take-home pay - as the unused tax allowances and credits of one spouse can usually be shared between both. However, the ability to transfer tax allowances and credits will only really benefit you financially as a couple if one of you is not working - or if one of you is earning less than €34,000.

So in short, your civil partnership hasn't saved you anything on tax yet - when it comes to take-home pay.

Disappointed pensioners

€5 a week worse off than 2007

€5 a week better off than 2012

You're a married couple who both retired in 2006 at the age of 65. You're both aged 75.

Although you both have a private pension, at €10,000 a year each, you didn't get as much out of that pension as you expected - because you left it too late to start saving into it and didn't save enough when you did. You also both qualify for the full contributory State pension - which increases to €233.30 a week from this January. You have two adult children who have long flown the nest. You own your own home - worth €600,000 and your only asset of any value. You would like to pass your home onto your two children when you pass away.

You will take home €42,476 after tax next year - that's just €250 shy of what you got in 2007, according to Jane Devlin, manager in PwC's south-east tax practice. So you're only worse off to the tune of about €5 a week under Budget 2016 than you were in 2007. You're also about €250 a year - almost €5 a week - better of than you were in 2012, when your take-home income had fallen to €42,226.

"The couple will benefit from the €3 per week increase in the State pension," said Ms Devlin. "But, even with the pension increase, their income is still slightly lower than in 2007 because the personal tax credits have not been restored to their old level. The couple do not benefit from the Budget tax changes to the USC as the tax levy does not apply to the State pension and their private pensions are below the entry level for the USC."

With a house worth €600,000, the changes made to inheritance tax in Budget 2016 don't go far enough to allow you to pass on the family home to your children tax-free. Under those changes, a child can inherit up to €280,000 tax-free from a parent - up from a previous limit of €225,000. Were you to leave an equal share of the family home to each of your two children, the inheritance would be worth €300,000 to each of them, which is over the tax-free threshold.

Struggling sheep farmer

€6 a week better off than 2007

€15 a week better off than 2012

They say life begins at 40 - but you find that hard to believe. You're a 40-year-old sheep farmer who is struggling to get by on €11,160 a year. Your income has been at that level for the last 10 years. You're single, you have no children, and you own your own home and land. You have no other sources of income.

Believe it or not though, you are the only worker in this paper's study who will be better off in 2016 than he was in 2007. You will take home €10,682 after tax under Budget 2016 - €329 more than you did in 2007, according to Jim McCleane, tax director with PwC.

You'll still only get about €205 a week in 2016 mind you - but this is about €6 more a week than you took home after tax in 2007.

One of your lowest points during the recession was 2012, when you took home €9,886 - about €190 a week. At that rate, you were almost better off on the dole.

"Overall, this farmer's net income will be slightly higher than in 2007 because of the new tax credit on earned income," said Mr McCleane.

This tax credit is worth €550 a year to farmers and other self-employed individuals. However it is still a third of the tax credit which PAYE workers get.

Furthermore, you won't benefit from the USC changes just announced in the Budget because as your income is so low, you don't have to pay the levy. However, you are still in a better position with the USC than you were when you had to pay it in 2012 (because the USC kicked in on a lower income at the time).

Filthy rich

€4,258 a week worse off than 2007

€360 a week worse off than 2012

You're a well-off individual in his early 50s with assets worth €50m. Those assets include Irish property worth about €40m, €5m in Irish shares and €5m in other savings and investments. You're also earning a salary of €2m a year as chief executive of a major Irish firm. On top of this, you're earning about €500,000 in dividends and rental income a year. You're married and your spouse isn't working. You have three adult children who are no longer living at home.

At €1,203,968, your take-home pay after tax will be €221,400 lower next year than it was in 2007, according to Sean Walsh, senior manager with PwC. You'll take home €23,153 a week in 2016 - compared to €27,411 in 2007. You are the only person in this paper's analysis who is worse off under Budget 2016 than he was in 2012. You took home €1,222,673 after tax in 2012 - or €23,513 a week. That's about €360 a week more than what you will take home in 2016.

"While this family has seen a reduction in their tax credits since 2007, they have benefited slightly from a 1pc reduction in the higher rate of income tax rate after Budget 2015 and also an increase in the amount you can earn before paying tax at the higher rate," said Mr Walsh. "The USC cuts under Budget 2016 benefit individuals with income up to €70,044. Individuals with income greater than €70,044, such as this family, will continue to attract USC rates of up to 11pc. This family's PRSI bill has also increased significantly between 2007 and 2016. This family has seen an 8pc decrease in its take-home pay since the beginning of the austerity budgets."

Worn out working mum & dad

€122 a week worse off than 2007

€54 a week better off than 2012

You're a married couple in your early 40s with five children under the age of five. You both work. One of you, who is self-employed, earns €120,000. The other, who works part-time as a secretary in a local business, earns €40,000.

At €99,385, your annual take-home pay after tax is €6,340 less under Budget 2016 than it was in 2007, according to EY's Pat O'Brien. This is largely down to the USC (which will cost you €9,235 next year) and increases in PRSI since 2007, said Mr O'Brien. As a result, you're €122 a week worse off under Budget 2016 than you were in 2007. You're better off than you were in 2012 however - your after-tax income fell to €96,553 that year which left you with €54 a week less than Budget 2016.

Freelance photographer on €50k

€24 a week worse off than 2007

€30 a week better off than 2012

You're a 35-year-old freelance photographer who earns €50,000 a year. This is your only job and you're self-employed. You're single and you have no children.

One of the big wins for you under Budget 2016 was the tax credit for the self-employed, which is worth €550. You're hoping it will be tripled over the next few years to bring it in line with PAYE workers.

At €34,997, your take-home pay next year will be €1,263 lower than it was in 2007, according to EY. This leaves you about €24 a week worse off under Budget 2016 than you were in 2007. However, you are better off than in 2012, when your take-home pay stood at €33,459 - which meant you were about €30 a week worse off back then than you are today.

"Along with the new tax credit for self-employed individuals, this photographer also benefits fully from the USC cuts," said Mr O'Brien. "He is closer than many others to restoring his net income to what it was in 2007."

Store manager on €50K

€33 a week worse off then 2007

€14 a week better off than 2012

You're a store manager who earns €50,000. Like the freelance photographer we have just examined, you're single, you have no children and you're 35-years-old.

Unlike the photographer, you're a PAYE worker. This means you're about €1,100 better off after tax under Budget 2016 than the self-employed photographer is - even though you both earn the same income. This is largely because as a PAYE worker, you're entitled to more tax credits. So you can expect to take home €36,097 after tax next year - compared to €34,997 for the self-employed photographer, according to Mr O'Brien.

In 2012, when the self-employed photographer got no tax credits for earned income, the difference between your after-tax pay and that of the photographer was even more. You earned €1,914 more than the self-employed photographer that year - even though you both still earned €50,000.

Despite all this, you're still worse off financially under Budget 2016 than you were in 2007. Your after-tax pay will come to €694 a week next year, compared to €727 a week in 2007, according to EY. However, you've more in your pocket than 2012 - when you took home €680 a week after tax.

Joe Soap

€21 a week worse off under Budget 2016

€10 a week better off than 2012

You're a 30-year-old single man earning €36,000 - which is around the average wage. You work as a shop assistant in an electronics store. You live at home with your parents. You have no children.

You can expect to take home €28,924 after tax next year - €1,080 less than you did in 2007, according to Lauren Clabby, associate director with KPMG. That means you're about €21 a week worse off under Budget 2016 than you were in 2007. This is largely down to the USC and PRSI. You'll pay more PRSI next year than you did in 2007 and 2012. You paid €720 in tax levies (the then health levy) back in 2007 and next year, you'll lose €1,273 of your income to the USC, according to Ms Clabby. However, you're better off than you were in 2012, when the USC took €1,839 out of your pay packet. That left you with €546 a week after tax in 2012 - about €10 less weekly than what you'll get next year.

Property developer about to hit the big time again

€1,537 a week worse off than 2007

You're a self-employed property developer in your early 50s who earned €1m a year in 2007. You didn't go bankrupt during the property crash but as so much business dried up, your earnings dipped to €100,000 in 2012. That wasn't bad when compared to other developers you know. You have since won a few major contracts and you expect to earn €1m in 2016. You're married and you have five children. Your wife is a full-time, stay-at-home mum.

You'll be almost €80,000 worse off under Budget 2016 than you were in 2007, when the property market was just about to collapse. You'll take home €468,868 - or €9,017 a week - after tax in 2016, compared to €548,821 - or €10,554 a week - in 2007, according to Ms Clabby. "The introduction of the USC and the increases and changes in the USC rates and bands were the single biggest factor on the take-home pay of this developer," said Ms Clabby.

Back in 2007, you paid €24,500 in tax levies (that is, the health levy). You'll pay €104,542 in USC next year, according to Ms Clabby.

At €100,000, your gross income for 2012 was a 10th of your earnings for 2007 and 2016. However, the proportion of your income left after tax had been paid was higher in 2012 than it was in 2007 or 2016. Your take-home pay after tax came to 62pc of your income in 2012 compared to 55pc in 2007, and 47pc in 2016.

Single mum on social welfare

€4 a week better off than 2007

€5 a week better off than 2012

You're a single mum aged 28 who is not working and who has one child aged 10. You live in Dublin 1. You are not getting any maintenance payments or other financial support from the father of your child.

Looking at your social welfare payments alone, you will be about €215 a year - or about €4 a week - better off next year than you were in 2007. So along with the farmer, you are the only person in this paper's analysis who is better off under Budget 2016 than in 2007.

The total amount of social welfare payments you were entitled to in 2007 came to €13,696, according to the INOU. That €13,696 included the one-parent family payment of €207 a week, child benefit of €150 a month for the first three months of the year and €160 a month for the latter nine months, the fuel allowance, the back-to-school clothing and footwear allowance, and the social welfare Christmas bonus. It does not include rent supplement.

Next year, you'll be entitled to social welfare payments of €13,911, according to the INOU. That includes the one-parent family payment of €217.80 a week, child benefit of €140 a month, the fuel allowance, the back-to-school clothing and footwear allowance and the social welfare Christmas bonus.

So that means you're about €4 a week better off under Budget 2016 than you were in 2007.

In 2012, your social welfare payments came to €13,675, according to the INOU. So you will be about €236 better off next year than you were in 2012.

Had you qualified for rent supplement in 2012, the supplement would have been worth about €8,016 a year back then, assuming you rented a two-bed apartment in Dublin 1. You are unlikely to qualify for rent supplement for an apartment in Dublin 1 today - and you are unlikely to have done so in 2007 either, according to the INOU. This is because the market rent in Dublin 1 today is above the limits set for rent supplement - as was the case in 2007, said the INOU.

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