Crisis Budget to claw back all gains of past six years
REMEMBER all those tax-cutting Budgets of the last six years? Well, forget them. Because next Tuesday the Government will start taking it all back.
We are returning to the days of higher income taxes, as even those on modest incomes will hand over a bigger chunk of their incomes to the taxman.
That is the only conclusion that can be drawn from the comments made by Taoiseach Brian Cowen over the weekend when he said that our standard of living is set to plunge by 10pc a year for the next five years.
From these remarks, tax experts have concluded there will be tax hikes on all sorts of income as the Department of Finance attempts to restore some order to the public finances.
So Tuesday, April 7, is set to go down as the date of one of the toughest Budgets on record.
You may have thought last October's Budget was bad. And it was.
An income levy was introduced that hit a family on €60,000 for an additional €600 in tax.
The highest rate of VAT went from 21pc to 21.5pc; mortgage interest relief was reduced for established homeowners; saving tax was increased; and hospital costs were hiked.
But Mr Cowen's weekend comments imply that there is worse to come on Tax Attack Tuesday.
Those fortunate enough to still be in a job are likely to end up paying an additional €200 a month in higher taxes as a result of next Tuesday's crisis Budget.
This is based on the fact that the Government needs to find €4bn in additional revenue this year.
If that is to come from the taxes and levies it will mean an additional contribution of €2,000 from each taxpayer this year, according to director of taxation with the Institute of Chartered Accountants, Brian Keegan.
Mr Keegan said this was based on the fact that there are two million taxpayers.
So the Government would have to levy an additional €2,000 per taxpayer to bring in another €4bn in revenue, if it decides to generate the extra income it needs from the tax take.
The Taoiseach said taxpayers would find themselves back at standards of living that prevailed in 2002/2003.
Back then income tax rates were not much higher than they are now, but you earned far less income then at the lower tax rate before you moved to the higher rate.
At that time a married couple could earn just around €16,000 before they hit the higher rate of tax.
A string of cuts in tax rates and higher allowances since 2002 has meant that the same married couple can now earn €45,400 before being taxed at the 41pc rate.
The likelihood now is that much of the cuts in income tax rates, allowances and reliefs will now be reversed over the next few years, starting with Tuesday.
There is no time to change tax rates and allowances, as we are well into the tax year. So the view is that, in the meantime, the income levy is set to be doubled.
At the moment, 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.
The smart money is on a massive hike in these income levy rates. This is not based on Department of Finance briefings or kite flying on behalf of mandarins in Merrion Street, but on the views of tax experts and accountants.
Hiking the levy is a neat solution, from the Government's point of view, because it hits all sorts of income, from generous pensions to low pay and even impacts on the likes of rental income. Also in the firing line is the early childcare supplement, which is a payment to families with children under five.
It had applied to children up to the age of five-and-a-half, but from this month it is only paid for children up to the age of five and the payment amount has been lowered.
The purpose of the supplement is to financially assist families with the cost of raising children.
From this month, the supplement is worth €996 per child, per year. It is paid monthly and is worth €83 a month per child.
The Government has lowered this payment twice already in the past few months, so the expectation is that it will be substantially cut or even abolished altogether.
Another area seen to b in the crosshairs is PRSI.
There have been suggestions that PRSI (pay-related social insurance) would have to rise.
But more likely is that the PRSI ceiling (where workers stop paying the 4pc PRSI pay on income over €52,000) will be scrapped.
Abolishing the PRSI ceiling for employed people has long being talked about but now could be the time the Government strikes.
Other indications this reporter is getting are that pensions for fat cats will be hit, with alcohol and petrol duties also in line for a hike.
The fact that there is a very strong likelihood of a sixth cut in European Central Bank interest rates on Thursday may tempt the Finance Minister to further reduce mortgage tax relief for established homeowners.
In the October Budget the tax relief on mortgages was increased for first-time buyers but cut for those with a home loan for more than seven years.
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.
When the minister reduced this tax relief on mortgage interest in October almost no-one noticed because the ECB rates have come down so much.
But there is set to be so much bad news in Tuesday's Budget few will fail to notice.
