Loophole will allow wealthy elite to pay even less tax
Published 09/01/2011 | 05:00
A NEW wealthy elite, earning more than €200,000 a year, will now pay less tax and avoid new pension levies because of changes in last month's so called "toughest" Budget ever.
The news comes as lower and middle-income earners are bracing themselves for the impact of Finance Minister Brian Lenihan's austerity Budget on their pay packets later this month.
As a result of the new universal levy, self-employed directors of limited companies earning more than €200,000 a year will now actually pay less tax than before, a leading financial and pensions expert has said.
Ms Catriona Ceitin said that such people will also be able to avoid new tax charges on pension contributions introduced in the Budget on December 7.
In the Budget, Mr Lenihan targeted private pension contributions for higher tax rates, but such directors can direct the company to pay into their pension. By doing so, they can avoid any tax charges since the Budget tax charges will only apply to personal payments paid directly from salaries.
It is thought there are hundreds of people in this elite group including some top stars within RTE, who are not staff, and others who have similar tax arrangements.
Given their published salaries, some of RTE's top broadcasters -- including Pat Kenny, Marian Finucane, Ryan Tubridy and Joe Duffy -- are in this category, though personal tax liabilities could mean an individual might not necessarily benefit in a given year.
The anomalies were discovered by Ms Ceitin, who said the choice to penalise personal pension contributions is also about to create a major divide in the civil service, with older members set to escape the burden of the extra charges.
According to Ms Ceitin, those who entered the civil service after 1995 make direct contributions to their pensions, while those who have been there since before that time do not. As a result, the average post-1995 civil servant will pay approximately 66 per cent more in tax and PRSI then their pre-1995 colleagues.
Speaking to the Sunday Independent, Ms Ceitin said: "There are many ways this Government could have tackled the pension issue, they chose the worst possible solution. There is no element of fairness in these measures whatsoever and it is a financial time bomb waiting to explode in the face of the next Government if not addressed. There may be a number of inequities in the current system but restricting the relief in the manner they are proposing will not solve the problem, it will enhance it. The measures have been designed by the top tier for the benefit of the top tier but will be paid for by the average worker."
Fine Gael's deputy finance spokesman Brian Hayes said this is the latest example of the Government "screwing" the ordinary worker and rewarding high-income earners.
"I think it highlights yet more unfairness, where a person's tax status is highly beneficial toward high-income earners at the expense of hard- pressed middle-income earners. The middle classes have been screwed again."
Mr Hayes also called on Mr Lenihan to take action and ensure these inequities aren't introduced.
"There is now an opportunity for the minister to remove many of these inequities before the publication of the finance bill, and the pensions system must be balanced back in favour of middle-income earners," he added.