Tuesday 20 March 2018

Revealed: How much better off the middle-income earner will be after Budget tax cuts

Tax experts warned workers not to expect any more than the price of a pint
Tax experts warned workers not to expect any more than the price of a pint

Charlie Weston and Kevin Doyle

Middle-income earners have been warned that tax changes in the Budget are likely to leave them with less than €4 extra a week.

Tax experts warned workers not to expect any more than the price of a pint from measures introduced by Finance Minister Paschal Donohoe.

They could get even less if the minister opts for changes to the Universal Social Charge (USC), as Fianna Fáil wants, instead of altering the income tax bands.

Taoiseach Leo Varadkar has promised to reduce the tax burden on middle-income earners in this year's Budget.

Finance Minister Paschal Donohoe. Picture: Collins
Finance Minister Paschal Donohoe. Picture: Collins

Mr Varadkar favours making changes so that workers can earn more money before they hit the top 40pc income tax rate.

But there is only limited money available for tax cuts.

Mr Donohoe last night warned Cabinet colleagues not to overstate the potential for a giveaway Budget.

The Irish Tax Institute warns it will cost €200m to ensure workers can earn an extra €1,000 before hitting the top rate of tax. However, this will only work out at an extra €4 a week for most workers. This could benefit up to 1.2 million taxpayers.

At the moment a single worker goes from paying income tax at the 20pc rate to the 40pc when their earnings go over €33,800.

A married couple with one income hits the higher rate of tax on income over €42,800.

In other countries you have to earn far more before you hit the top rate of income tax.

Changing the income tax band to allow workers to earn another €1,000 before hitting the top 40pc tax rate would only lead to a gain of €200 a year for a single worker, or less than €4 a week.

A married couple with two incomes totalling €80,000 would gain €400 a year if there was an increase of €1,000 in the entry point to the higher tax rate. This works out at less than €8 a week.

Fianna Fáil leader Micheál Martin is demanding cuts to the USC in the Budget instead of making changes to income tax. But that would deliver smaller gains for workers, according to the Irish Tax Institute figures.

Reducing the main USC rate of 5pc to 4.5pc would only give a gain of €106 a year to middle-income earners. This works out at €2 a week.

The 5pc USC rate is paid by most workers, those earning between €18,773 and €70,044.

Chief executive of the Irish Tax Institute Martin Lambe said there was limited room for tax cuts in the Budget.

"It won't be a giveaway Budget," he said.

The tax body revealed that the top 50pc of taxpayers are paying 97pc of all income tax. Income tax and USC raises close to €30bn a year. This represents 40pc of the State's tax take.

Meanwhile, the Finance Minister briefed his Cabinet colleagues on the state of the economy yesterday, revealing the risks facing the country are now considered "more balanced" than earlier this year.

But he still attempted to dampen expectations as he will only have in the region of €300-€400m available for Budget day announcements.

"His message was there's not going to be a lot in the Budget. He doesn't have the money," one minister told the Irish Independent.

Mr Donohoe will enter into a series of one-to-one meetings with ministers in the coming weeks, giving them an opportunity to pitch for extra funding.

Irish Independent

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