Taxing times: Budget preview
This year's budget is looming, and consumers are bracing themselves for a harsh winter. With this in mind, Charlie Weston lays out where he thinks the Government will be making their cuts.
WITH a week and a day to go to the Budget consumers are bracing themselves for another bashing.
Here 'Your Money' outlines where we expect the hits to come from, based on previous leaks from the Government and conversations with tax practitioners and personal finance experts.
This is not based on any direct leaks from Finance Minister Brian Lenihan or his department to this reporter. And so it is not some attempt to "soften up" consumers.
Rather it is an attempt to prepare people for the worst.
The tax rates are very unlikely to change. Already the marginal rate (the tax rate paid on the last euro of a person's income) is in excess of 50pc.
However, Mr Lenihan has given strong hints that the low paid are likely to be asked to pay tax, pointing out that next year half of the State's workers will pay no tax if there are no changes.
He could drag more people into the tax net by altering the bands (tax bands will determine the rate of tax you pay on your income) and allowances or tax reliefs.
Increasing taxes on the lower paid will make it necessary to cut social welfare payments like jobseekers' benefit and allowance to ensure people do not find it more beneficial to stay on welfare rather than take up employment.
There are already a number of these so-called poverty traps in the system -- disincentives to take up work.
Mr Lenihan is likely to argue that general prices are down by 6.6pc.
Thousands of people getting double social welfare payments are likely to lose one of the benefits under stringent new cost-cutting likely to be announced in the Budget.
The cuts would hit those who get the half-rate carers' allowances or those allowed to work a number of hours a week on a community employment scheme while keeping their social welfare payment.
Around 16,000 carers get the €110-a-week payment, including those in receipt of widows' or state pension.
The Greens are pushing hard in Government for the cap on PRSI (pay related social insurance) to be removed.
If you earn €352 or less per week, your earnings are exempt from PRSI. If you are a private sector worker and earn above €352 per week PRSI does not apply to the first €127, but applies at 4pc to the balance, up to a ceiling of €75,036.
This is up from €52,000 in the emergency Budget earlier this year.
If the ceiling is removed those earning more than €75,036 will be hit hard.
Alternatively, the cap could be removed and the rate reduced to 3pc for everyone, as was done with the self-employed a few years ago.
The Greens have secured agreement in the Revised Programme for Government that there will be a carbon tax introduced.
This is likely to add 5c to a litre of petrol and diesel.
The tax will also send the cost of household heating fuels soaring. The price of 1,000 litres of home heating oil would rise by almost €54, or 10pc.
The annual gas bill would increase by over €40 and car fuel bills would rise by at least €70 per year. Using peat briquettes and coal in open fires would also put pressure on family budgets.
It is estimated that the proposed carbon tax will add €2.56 to the price of a bag of coal and 48c to the cost of a bale of briquettes.
Electricity prices should not rise, as there is an element of carbon pricing in the electricity pricing.
Welfare recipients and the elderly are expected to get help to cover the cost of the carbon tax. The poor will get cash back to compensate somewhat from the child benefit reduction.
Parallel with the carbon tax, the fuel allowance social welfare payment is also expected to be increased.
The Cabinet is targeting €300m in cuts to child benefit, with wealthy parents to be hardest hit.
The indications from Social Welfare Minister Mary Hanafin are that child benefit would be paid at three levels -- one for low-income families, one for middle-income and one for the well-off.
Any cut in child benefit -- which is €166 for the first and second child -- will be hugely controversial as many households are depending on it to survive at the moment.
There is a commitment in the Programme for Government to introduce a single 33pc rate of tax relief on employee pension contributions.
Currently, higher-rate taxpayers can claim tax relief on pension investments at the 41pc rate, while those in occupational schemes can also claim relief on PRSI (4pc) and the health levy (between 4pc and 5pc).
This effectively means a higher rate taxpayer can put €100 into a pension at a net cost of €51.
Cutting the relief for all would mean it will cost a higher rate taxpayer €67 to put €100 into a pension.
The "old reliables" of taxing alcohol and cigarettes are likely to figure again this year.
The €200 tax on second homes and investment properties came into effect earlier this year. Now that it is introduced expect it to rise from €200 because that is the way Governments act --- get over the hard bit of introducing a new tax and then keep increasing the rate.