Monday 18 December 2017

Taxes: Changes will cut family income by €4,600 each year

Charlie Weston Personal Finance Editor

FAMILIES will be almost €4,600 a year worse off once all the planned changes in the four-year plan are implemented.

This is due to extra income tax; water charges; pension changes; a site valuation tax; higher college fees; a doubling of the carbon tax and the loss of tax reliefs.

The pension changes alone will cost a family a net €1,000 per year, while changes to income tax will rip €2,300 from the income of a single-income family on €55,000.

These huge changes in income tax will see the Government rake in an extra €1.9bn a year and hit all workers hard.

People will enter the tax net at a much lower level of income, they will pay tax at the higher 41pc rate on more of their income, and will get lower tax credits than at present.

A large number of tax reliefs that people can claim will be abolished, while the income and health levies will be merged in with the PRSI charge to become a universal social charge.

Taoiseach Brian Cowen said the swingeing changes will mean that income tax levels will come back to 2006 levels.

“Over the course of this plan it is intended fundamentally to reform the income tax system,” he added.

The changes will mean that a married couple, with one income of €55,000, will see their annual income reduced by €2,310 from the tax changes planned over the next four years.

A single person on €55,000 a year will be €1,860 worse off, the ‘National Recovery Plan’ states. Wages Anyone earning more than €15,300 will now pay tax.

Up to now you had to earn €18,300 a year to enter the tax net. The €15,300 equates to working 40 hours a week on the new minimum wage of €7.65 an hour for 50 weeks of the year.

These changes will be phased in over the four years. The document states that this year just 8pc of taxpayers, or those earning €75,000 or more, are paying 60pc of all income tax.

Ernst & Young partner Jim Ryan said the changes planned in the fouryear plan would mean that instead of having 45pc of the workforce outside the tax net only 32pc will now be outside it.

However, higher paid workers will continue to be hit hard. Specific changes are to be outlined in the next four Budgets, starting on December 7.

Accountants estimated yesterday that workers will see tax credits – or the amount of money you can earn before you pay tax – gradually reduced over the four-year period.

By the end of the four-year period the tax credits will have fallen by around €600 for a single worker, partner at KPMG John Bradley said.

People in work will also pay tax at the higher 41pc rate on lower levels of income. At present a single earner pays tax at 41pc on income over €36,000.

After the four years of the plan, workers will end up paying the higher rate of tax on income above around €33,000, Mr Bradley said.

Marginal rates – the amount of tax you pay on additional income, once tax credits have been exhausted and you have entered the higher tax bracket – will remain high.

A host of tax reliefs are set to go. The tax relief for paying trade union subscriptions, which can be up to €80 a year, will be abolished. The tax relief for renting a residence will also go.

However, mortgage holders are to retain their tax relief as it was felt by the Government that abolishing this could push more homeowners into arrears.

Also set to go are the tax credits (of €325 for a widow) for those over the age of 65. Pensioners will be hit hard by the removal of the age exemption.

This allows a single pensioner to effectively earn €20,000 before paying tax, with the amount doubling for couples. No date for the removal of this is given. Tax reliefs for share schemes will also go.

Irish Independent

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