I predict a Budget
Make no mistake about it, the mini-Budget coming down the tracks is going to be an absolute stinker, and it's only a foretaste of even worse to come, writes Charlie Weston
Budget blues: Finance Minister Brian Lenihan is set to hit us with a range of tax rises and also increase the duties on cigarettes and alcohol. There is also likely to be a new higher tax rate of 50pc and a cap on tax reliefs to company directors.
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GET ready to have your pockets picked on Tuesday week. So severe is the mini-Budget expected to be that Finance Minister Brian Lenihan is bound to be compared with the Artful Dodger in 'Oliver!'
You can almost see Mr Lenihan and his Department of Finance officials humming a verse or two of 'You've Got to Pick A Pocket Or Two' as they prepare to empty our wallets and purses on April 7.
So what exactly can we expect from the dreaded mini-Budget?
For a start it will be anything but a mini-Budget. It is set to be a maximum Budget and just the first of a number of severe budgets over the next four years in an attempt to rein in our out-of-control public finances.
Here is where 'Your Money' expects the hits to come from, based on conversations with politicians, tax practitioners and personal finance experts.
This may not turn out to be entirely correct, but it is our best guess based on the limited information out there.
Personal tax
Expect the the income levy rates to be raised, as a temporary measure. It will be hiked now because the Government needs additional tax revenue quickly.
It would take at least two months to alter tax rates, tax bands and credits, according to tax partner Ciaran Medlar, of BDO Simpson Xavier.
This is because every taxpayer, and employer, in the country has to be issued with new tax certs when there are changes to rates and credits.
The Government is expected to signal that it will raise tax rates and/or alter tax credits with this to take effect from the start of next year.
Likely here is a new higher tax rate of 50pc for those on high salaries, while adjustments will probably be made to the tax credits to take more lower-paid workers into the tax net.
But for now the smart money is on a hike in the income levy rates -- to be replaced with higher taxes from next year.
Currently, a 1pc levy applies on income between €18,304 a year up to €100,100. Income between €100,100 and €250,120 is levied at 2pc. Income over €250,120 is levied at 3pc.
It is a fair bet that the 1pc income levy will become 1.5pc, the 2pc levy could become 3pc or higher. These is also likely to be even more income thresholds.
For example, we could end up with the 1pc applying to income between €18,304 and €50,000, then 1.5pc applying on income between €50,000 and €70,000 etc. The income levy would seem to be a neat solution as far as the minister and his mandarins are concerned, as it impacts on total income, irrespective of the taxpayer's income status.
So, those with generous pensions and the low-paid both take a hit from the income levy.
PRSI
There have been suggestions that PRSI (pay related social insurance) would have to rise and/or that the PRSI ceiling (where workers stop paying the 4pc PRSI pay on income over €52,000) will be scrapped. This is highly likely.
Other indications this reporter is getting are that employer's PRSI -- which is 10.75pc -- will be cut as a incentive to employers to retain staff.
Pensions
There are indications that the generous tax reliefs enjoyed by company directors are set to be capped in the mini-Budget.
For those in occupational pensions and the self-employed the maximum amount of income that can be taken into account when it comes to getting tax relief on pensions is €150,000, following changes in the last Budget.
This means that a 50-year-old can get tax relief on 30pc of €150,000, or €45,000.
But so generous are the provisions for proprietary directors (those who own more than 5pc of the company) that a 50-year-old can claim relief on 216pc of their income, with pension fund size capped at €5.4m
This means someone of this age on a salary of €100,000, who is married, and who is starting to pay into his/her first pension could claim tax relief on a salary of up to €216,000, according to financial adviser Liam Ferguson of ferga.com.
A cap of €150,000 is likely to now be put on the salary level directors can use for tax relief on pensions. The minister is unlikely to standard rate (ie cut to 20pc) the tax relief on pension payments.
Mortgage tax relief
Expect the Government to cut the amount of tax relief received at source by those with mortgages. In the October Budget the tax relief on mortgages was increased for first-time buyers but cut for those with a homeloan for more than seven years.
When the minister reduced the amount of allowable relief on mortgage interest payments almost no-one noticed because the European Central Bank rate has come down so much.
Currently a non-first time buyer couple gets a tax credit of up to €900 a year on interest paid of up to €6,000 a year. For a single person, the relief is half this amount. Expect a couple to have their mortgage tax relief cut to €600.
