Monday 14 October 2019

Many better off than in boom years but high earners hit

A large number of workers are in a better financial state under Budget 2018 than they would have been at the height of the Celtic Tiger - but only if they earn under €70,000, as the best paid are worst hit by tax

Louise McBride

Louise McBride

Many workers will be better off financially next year than they would have been at the height of the Celtic Tiger in 2006 - as long as their pay packet is no more than €70,000.

This is because many such earners will lose less of their income to tax under Budget 2018 than they did under Budget 2006. Not all of those earning up to €70,000 will end up with more take-home pay next year than they did in 2006 - but those that don't should be close to bridging the gap.

However, high earners will still be considerably worse off next year than they were in 2006 - as it is largely these who have been worst hit by the extra taxes introduced by the Government during the recession. So the take-home pay of many high earners will still be much lower next year than it was at the height of the boom.

These are some of the findings of an analysis by the Sunday Independent into the impact of Budget 2018 on the pockets of workers, pensioners and single mothers on welfare.

For this analysis, we teamed up with experts at PricewaterhouseCoopers, Deloitte, KPMG, EY and the Irish National Organisation of the Unemployed (INOU) to find out which people will be worse - or better - off under Budget 2018 than they were in 2006. To ensure our figures were comparative, we assumed that the earnings or income for each of the individuals or couples we examined was the same in 2006 as it will be in 2018.

Some of those on social welfare are among the biggest winners of the Budget measures introduced since the Celtic Tiger, our analysis found. For example, a single mum on social welfare could now be getting more than twice as much welfare payments as she did at the height of the Celtic Tiger. Other winners include pensioners on modest incomes - and the self-employed.

Here's the full lowdown.

Average earner

  • €35 a week better off than 2006

You're a 30-year-old single man earning €37,600 - which is the average wage. You have no children. When it comes to take-home pay, you are better off financially under Budget 2018 than you were at the height of the Celtic Tiger in 2006 - and this is largely because less of your earnings are getting hit for the higher rate of income tax.

Budget 2018 has increased the point at which earnings get hit for the higher rate. So you will now pay the higher rate on earnings over €34,550 - rather than on earnings over €33,800, as had previously been the case. At €34,550, the amount you can earn before the higher rate is still below the average wage. However, the higher entry point for the top tax rate is a step in the right direction.

Another reason why your take-home pay is better off now than in 2006 is that the tax credit for PAYE workers is also higher today than it was back then.

At €30,193, you will take home €1,817 more pay (or €35 more a week) after paying tax next year than you did in 2006, according to Lauren Clabby, associate director with KPMG. You will still pay more tax levies (through the USC) next year than you did in 2006 (through the then health levy) and your PRSI bill will also be higher. However, you will pay less USC next year than you did last year due to the cuts announced in Budget 2018.


  • €85 a week better off than 2006

You're a married couple who are both aged 76. You both worked all your lives and retired in 2006. You each get a private pension of €10,000 a year. You also both qualify for the full State contributory pension. You have two adult children who no longer live at home. You own your own home but this is your only asset.

As a couple, you will be €4,442 better off under Budget 2018 than you were in 2006, according to Jane Devlin, senior manager with PwC. Your total income from the State and private pension will come to €43,245 next year after tax - compared to €38,823 at the height of the boom. That means you're €85 a week better off under Budget 2018 than you were in 2006.

The main reason for the jump in your after-tax income are the increases in the State pension over the last few years. "There has been a considerable increase in the weekly State Pension since 2006," said Devlin. "Under Budget 2018, this couple will benefit from the €5 weekly increase in the State pension from the last week of March 2018."

You don't, however, get any benefit from the Budget 2018 cuts to the USC - as the USC does not apply to your State pension or private pension. (The State pension is exempt from the USC and so too is income from private pensions if that income is below €13,000 a year, as is the case for each individual in this couple.)

You may also be disappointed by the lack of movement on the inheritance tax thresholds in last Tuesday's Budget. The Government had previously committed to increasing the tax-free threshold on inheritance tax from a parent to a child to €500,000. Last year, the Government raised that threshold to €310,000, allowing a child to inherit up to €310,000 from a parent without having to pay inheritance tax. However, this threshold wasn't increased under Budget 2018 and so should you decide to leave your family home to one or both of your children, you may well trigger an inheritance tax bill for your children when doing so - depending on the value of the home.


  • €18 a week better off than 2006

You're a 40-year-old dairy farmer whose farm income comes to €60,000. You're married with three young children and your wife stays at home to look after the children.

At €45,823, your take-home pay will be €973 higher - or €18 a week more - under Budget 2018 than it was in 2006, according to Devlin.

A boost in the tax credits which you can claim is one of the main reasons for your jump in take-home pay.

The home carer's tax credit - which is paid to married couples and civil partners where one spouse or partner stays at home to look after a dependent child -will be increased from €1,100 this year to €1,200 in 2018.

In 2006, the home carer's tax credit was only worth €770.

You'll also benefit from the increase in the earned income tax credit - which is a tax allowance aimed at the self-employed.

The value of the earned income tax credit will increase from €950 this year to €1,150 in 2018. As this tax credit was only introduced in 2016, you could not claim it in 2006.

Another plus of Budget 2018 is the increase in the amount of money you can earn as a married couple before getting hit for the higher rate of income tax.

The hike in commercial stamp duty however is a big downside of Budget 2018 -if you buy farmland next year, your stamp duty bill could be three times what it previously was.

Single mum on social welfare

  • €338 a week better off than 2006

A single mum of one child will get more than twice as much social welfare next year as she received in 2006, according to this paper's analysis. This makes this individual one of the biggest winners of the Budget measures introduced since the height of the Celtic Tiger.

Let's say you're a single mum aged 28 who is not working and who has one child aged 10.

You live in a two-bed apartment in Dublin 1. You are not getting any maintenance payments or other financial support from the father of your child.

The total amount of social welfare payments you will be entitled to under Budget 2018 will come to €29,637 a year - or €570 a week, according to the INOU. That includes the jobseeker's transition allowance of €198 a week (payable from March 26, 2018) and an extra allowance for your child of €31.80 a week, a housing assistance payment of €294 a week, a fuel allowance of €11.68 a week, child benefit of €140 a month (€32.31 a week) and the back-to-school clothing and footwear allowance of €100 a year (€1.92 a week), according to the INOU.

By comparison, a single mum with a 10-year-old child was entitled to €12,048 worth of social welfare payments in 2006 - or the equivalent of €232 a week.

You won't qualify for rent supplement in Dublin 1 today - and you are unlikely to have done so in 2006 either, according to the INOU. This is because the market rent for a two-bedroom apartment in Dublin 1 today is above the limits set for rent supplement - as was the case in 2006, says the INOU.

However, you should qualify for the housing-assistance payment - a scheme which is expected to eventually replace rent supplement.

"The housing assistance payment is a new payment available since March 2017," said Lorraine Hennessy, head of training with the INOU. "Before March 2017, the housing assistance payment was only to available to those in a homeless situation. This is a housing support payment made through a local authority to those on the housing list who are in private rental accommodation."

The housing assistance payment however does not cover the full cost of rent, and in this scenario, the tenant would be making a contribution of €102 a week to the rent. The housing assistance payment is a potential support to people on a social welfare payment or in low-paid employment who have established with their local authority that they have a long-term housing need. However, the INOU is aware that amongst the barriers to accessing this support is the severe lack of available accommodation and landlords willing to take on such tenants.

Small-time Landlady

  • €2 a week worse off than 2006

You're a landlady who is renting out two residential properties in Dublin. Your total rental income from those two properties is €40,000. This is your sole income. You are single and you have no children. None of your rented properties qualify for any special tax relief scheme and the tenants are not social housing tenants. At €29,773, you will take home only €97 less of your rental income after tax as you would have had you earned the same €40,000 rent in 2006, according to McHugh. This means you're only €1.86 a week worse off under Budget 2018 than Budget 2006. So you're not that much worse off than you were at the height of the Celtic Tiger.


  • €8 a week worse off than 2006

You're an unmarried couple who are living together. You both work for the same employer. You both earn €40,000 each - or €80,000 in total. You are paying €1,600 a month in rent and so are eager to get on the property ladder.

You will take home €62,846 after tax next year - €402 less than in 2006, according to Alison McHugh, director of private clients with Deloitte. "This couple's fall in income is mainly due to the availability of the rent tax credit in 2006," said McHugh. "The rent credit will be fully abolished from 2018." The rent tax credit, which will end this year, is a tax credit which can be claimed by some of those renting private accommodation. On the plus side, the Help-to-buy scheme, which gives first-time buyers up to €20,000 towards the cost of buying a new home, is being retained. But, the cuts to - and phasing out of - mortgage interest relief will be a financial disadvantage should you manage to buy a home.

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