It may be coming earlier this year, but the expectations are that the Budget won’t be as tough as those that have gone before it. While we won’t know for sure the full impact of this year’s “adjustment” until next Tuesday, it’s likely that – at first glance at least – the measures to be announced won’t cut as deeply as the austerity budgets that have preceded it.
The major tax revenue raising measure in this year’s exercise is likely to be one we are all already starting to come to terms with – residential property tax.
Introduced earlier this year, the tax, which is levied on the value of properties across the State, has already generated about €200 million. However, familiarity won’t ease the pain when the full year impact kicks in in January and it’s still likely to cause some pain. Apart from that, the perception is now that people can’t simply afford to give up any more income. There is just no bite left to take from the apple.
Grant Thornton has done the sums and estimates that the average family has already lost €300 a month over the austerity budgets of the past five years. A considerable sum, it is due mostly to the introduction of new taxes, like the universal social charge and local property tax, alongside the reduction in child benefit.
And the cuts have been hitting lower income workers harder. For example, a one-parent family earning €40,000 has seen its tax bill increase by 125 per cent since 2008, corresponding to a €300 a month decline in income. If the couple was both earning this sum, and had two children and a house valued at €200,000, the tax bill would have risen only by 54 per cent.
And, a top-earning family, with a combined income of €190,000, has only seen a 29 per cent increase in their tax bill.
Given the particularly onerous hit those on lower incomes have already taken, we're unlikely to see any changes to either tax rates or bands. So, by and large, families may emerge from this budget with a similar amount in their take-home pay each month.
Higher earners, particularly those coming close to retirement, may be hit by the likely diminution in the maximum pension fund allowable for tax purposes.
Families with public sector employees are unlikely to see any specific measures aimed at them, given that a lot of their terms and conditions are being dealt with in the Haddington Road agreement.
Still, while the headlines might be thankfully free of major tax hikes next Tuesday, the Government is likely to look to raise additional tax revenues in a more insidious fashion.
Unearned income
As has already been flagged, families with so-called "unearned income", such as dividends, savings or rental income, may be required to pay PRSI on top of any relevant taxes, such as DIRT or income tax. This could push the effective rate of DIRT up to 37 per cent, which would mean that almost four out of every ten euro you earn in interest will be taken by the tax man.
More significantly, this means a whole cohort of people in the PAYE sector may now be confronted with having to file a tax return to the Revenue for the first time.
Tax rates on capital gains and inheritance /gift tax are also tipped to rise again, to 35 per cent from 33 per cent, even if there are currently fewer gains and less to pass on to family members. The threshold for capital acquisitions tax (governing inheritance and gifts) may also drop again towards €200,000.
And, an earlier budget may mean an earlier tax filing date for self-employed people and others who are required to do so. Having to pay your tax bill a month or so earlier will benefit the government – but will put an additional strain on the self-employed sector. Another area the Government might put some resources into is cutting out tax evasion in the black economy, bringing more income into the tax net.
