Families are hit for extra €2,000 in tax
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WORKING families will be hit for an average €2,000 from levies, charges and taxes, after the Government yesterday copperfastened one of the most controversial Budgets in decades.
A family earning €50,000 before tax will notice its spending power shrink significantly due to the income levy and a string of other charges.
The final cost for hard-pressed workers became clear last night after Brian Lenihan published the Finance Bill. The Government used the opportunity to try to deflect criticism that it hit the vulnerable in the Budget. Yesterday, it targeted the wealthy with two major tax changes.
Mr Lenihan announced a 3pc levy on all incomes over €250,000 and closed off a loophole for tax exiles. Government sources see these changes as a shift in policy towards more taxation for the better-off.
And this trend for hitting high earners could continue, as the Commission on Taxation could recommend more tax on higher incomes in its report, due next autumn.
But the Opposition said the income levy will mean a big reduction in take-home pay for all, hitting those on modest incomes hard.
The Finance Bill introduces or increases 17 taxes, Fine Gael's deputy leader Richard Bruton said.
The measures will be debated in the Dail next week and are expected to be carried.
Mr Lenihan said the move to introduce a new 3pc income levy for super-earners will mean they will contribute an extra €60m to the state coffers.
And the minister insisted the changes in the levy would now mean that the more people earn, the more tax they will pay.
An estimated 12,300 people earn more than €250,000 a year. Despite accounting for just 0.5pc of the workforce, they will contribute 20pc of the money raised by the levy.
Mr Lenihan said the Bill was being published in the context of the most difficult economic and fiscal climate in a generation. He said he was guided by the principles of "fairness, sustainability and affordability".
"The measures contained in this Bill strike a balance between the need to protect those on low incomes, and the need to restore order to our public finances," he said.
However, families are set to lose out from the new income levy, which comes in next January. Higher VAT rates, an airport travel tax, parking charges and higher motor tax will also impact on most families.
Savings taxes are to rise to 23pc; there will be a reduction in the tax relief on medical expenses, from 41pc to 20pc; and the tax on inheritances and gifts will rise from 20pc to 22pc.
The Bill also gives effect to higher motor tax, higher capital gains tax, and a reduction on the amount of income that can be claimed for pensions investment.
A typical family earning €50,000 will lose €500 from the new income levy, while the failure to index tax credits will cost the family €280.
Higher VAT charges are likely to cost €250, and the cut in the mortgage tax relief for non-first-time buyers will cost the family €300.
These charges, along with others, are likely to cost the family at least €2,000.
The Government attempted to deflect anger that it was relying on the old and the very young to dig the country out of a financial mess.
The minister attempted to ease the ire of middle income earners by imposing the new 3pc income levy on high earners above €250,120. The extra 1pc will cost them almost €60m a year, bringing their total levy bill to €200m.
This will almost recover the €70m lost to the Exchequer when those on low incomes were exempted.
The new 3pc levy will cost a top-earner like AIB boss Eugene Sheehy €59,500.
Fine Gael said the Finance Bill was the last piece of a "deeply flawed Budget jigsaw" and said its own calculations also suggested a tax hike of over €2,000 for an average family.
Mr Bruton said: "This will cost the average Irish family €2,450 in lost purchasing power in 2009."
"And this comes on top of the extra €1,000 or so that the average family could pay in higher government stealth charges -- like university registration fees, school transport charges and public hospital charges," he added.
- Charlie Weston, Fionnan Sheahan and Brendan Keenan
