High earners hit hardest because of USC and PSRI
High earners are probably the biggest losers of the Budget measures announced since the recession. These people will come home with less pay after taxes next year than they did at the height of the Celtic Tiger in 2006.
"The Budget measures over the last number of years has had a greater impact on high earners - particularly individuals earning more than €70,000," said Alison McHugh, director of private clients in Deloitte.
"This is largely due to the Universal Social Charge which increases the overall effective rate of tax. PRSI is also significantly higher."
In this paper's analysis, we examined how much worse off a multi-millionaire and a highly skilled IT professional will be next year than they were in 2006.
Multi-millionaire: €3,991 a week worse off than 2006
You're a wealthy man in his early 50s with assets worth €50m. Those assets include about €40m worth of Irish property, €5m worth of Irish shares and €5m worth of other savings and investments. You are also earning a salary of €2m a year as chief executive of a major Irish firm. On top of this, you are earning about €500,000 in dividends and rental income. You are married and your spouse isn't working. You and your wife have three adult children who are no longer living at home.
At €1,204,649, your take-home pay will be €207,521 less next year than it was in 2006, according to Lisa McCourt, senior manager with PwC. You took home €1,412,170 after tax in 2006. So you're €3,991 a week worse off under Budget 2018 than you were at the height of the Celtic Tiger.
The main reason your take-home pay has dived so much since 2006 is the USC. Your high earnings mean you're getting hit for the top rate of 11pc. The USC didn't exist in 2006. The only tax levy that existed in that year was the health levy. You lost €50,000 to tax levies (that is, the health levy) in 2006. Next year, you'll lose €209,011 to tax levies (that is, the USC).
On the plus side, under Budget 2018, there has also been an increase in the amount you can earn before getting hit for the higher rate of income tax. At 40pc, you're also paying a lower income tax rate than the 42pc paid in 2006.
However, the impact of the USC on your pocket more than wipes out your gains from these income tax changes.
"While this man has seen improvements on income tax since 2006, the USC is considerably higher than the health levy which was in operation in 2006," said McCourt.
"PRSI has also had many changes since 2006 - which results in a much higher USC and PRSI bill for this individual in 2018. This man's PRSI bill has increased significantly between 2006 and 2018 due to a number of factors including the abolition of the PRSI earnings limit and weekly exemption, and the introduction of a charge to PRSI on 'unearned income' - that is, his investment income."
The PRSI earnings limit had previously restricted the amount of earnings which you paid PRSI while the weekly exemption allowed you to earn a certain amount each week without getting hit for PRSI. The abolition of both of these measures significantly increased the amount of PRSI paid by many workers.
Highly paid IT professional: €62 a week worse off than 2006
You're a 30-year-old single man earning €100,000. You're a highly skilled IT employee working for a big US multinational. You have no children. At €61,199, you'll take home €3,219 less pay in 2018 than you did in 2006, according to McHugh. This means you're €62 a week worse off than you would have been in 2006. This is largely due to the USC and the increases in PRSI. Punitive taxes on highly skilled workers such as this could damage Ireland's competitiveness as it could encourage them to work abroad.
Sunday Indo Business