The 15 ways the new government plan will affect your pocket

What will the Programme for Government mean for your pocket? The programme has implications for everyone in terms of tax, welfare and areas of government spending that affect our finances – for example grants to retrofit homes or buy electric cars, help to first-time buyers and those taking out mortgages and commitments on childcare bills. Meanwhile increases in PRSI and carbon taxes are flagged. as well as changes in the local property tax – and long-suffering smokers will be hit again. Here are the details, mined from the 125-page programme.

1. Income tax

Income tax and USC. There will be no increase in income tax and USC rates over the period of the government. The burden of these taxes can, of course, be increased or decreased without changing the actual rates. Here, there is some news too.

From Budget 2022 on, we are promised that income tax credits and bands – and, it appears, USC bands – will be adjusted for inflation so that as people get pay increases, the tax burden on income does not rise. The credits and bands will not be adjusted in Budget 2021 – the argument is that few people will get a pay rise over the next year.

Income tax credits and the standard rate band were not indexed during the period of the last government, which meant that as incomes rose some earners were pushed into the tax net and others saw more of their income taxed at the higher rate.

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2. Welfare

Basic weekly welfare rates will be protected – whether they will be increased in line with inflation is not stated – and there is a recognition of the importance of many ancillary benefits. The Low Pay Commission is to be asked to examine the idea of a universal basic income – a core amount everyone would receive – which is to be subject to a trial during the government term.

Jobseeker support for those aged under 24 is to be improved – it was cut during the last recession.There is a commitment to boost supports for lone parents and for measures to help carers, including extending free GP care to those groups and developing some kind of pension plan for them.

3. Retrofitting

A major retrofitting programme targeting 500,000 homes is promised. Homeowners will see a programme being developed, taken on by an agency such as the ESB, offering grants and financial supports for this expensive work, likely to cost at least €40,000 to €50,000 for many in deep insulation and in some cases solar panels – and a lot more for some.

Banks may also come forward with loan products. Getting people to sign up for this disruptive and expensive work will require significant incentives – though there is a pay-off via lower heating bills and more comfort in the long term. The scheme will be rolled out area by area – starting in the Midlands.

4. PRSI

While income tax and USC will not increase, PRSI might. This is currently a 4 per cent charge on incomes for people earning over €352 a week. The programme says it might be increased to top up the social insurance fund – out of which benefits are paid – or to fund increased benefits in areas such as the State pension, short-term sick-pay, parental leave and medical and dental care benefits. PRSI rates are generally lower in the Republic than in many EU countries, particularly for employers, though benefits vary internationally too.

5. Pensions

Most attention has been on the pension age issue, with a commitment that the State pension age will remain at 66 pending a review by a pensions commission. However other changes are also flagged. Plans to make payments of the contributory State pension on what are called a total contribution basis, already in the works , will give more scope for people who took time out to mind children or adults needing care. This reform aligns benefits more with total contributions paid, rather than just with time worked.

Those without a full social insurance record are also to be allowed to top up payments past retirement age to increase their retirement provision.

6. Pandemic supports

We are told that one of the early actions will be to “set out the future distribution of the Pandemic Unemployment Payment, based on the principles of fairness and equity.”

Make of that one what you will, but there is a clearer hint that the temporary wage subsidy scheme will continue. We are told that the government would “set out a pathway” for its future implementation. It looks set to continue, though perhaps at a lower level, or targeting certain sectors.

7. Carbon tax

This is one of the most specific parts of the document, promising a move from a tax of €26 a tonne of CO2 emissions now to €100 by 2030, with a €7.50 a tonne rise each year and a €6.50 increase in 2030. Carbon tax is applied like an excise directly to the price of fuels, and so the plan would see a gradual increase in prices over the next decade, designed to change behaviour. For example, the carbon tax cost of a fill of petrol ( 60 litres) would rise from around €4.40 now to €16.95 by 2030, while the carbon tax element of a fill of diesel would increase from €3.93 to €19.65. Heating oil would be amongst the heaviest areas hit, with tax or €51.82 on a typical fill rising to €259 by 2030.

Economic analysis has found that rural households would be harder hit than urban ones – particularly poorer rural households. Middle class urban households would be hit mainly due to motor fuel increases. A mechanism to protect less well-off households via increasing fuel allowances and possibly other measures it to be developed, in tandem with the ESRI. Previous ESRI research has shown that the impact of the tax can be turned from being regressive – hitting less well off most – to progressive if poorer households get cash back.

8. Tobacco and other ’sins’

Smokers have got used to paying more after budget day and this is going to continue, with a commitment to continually increase excise duty as well as developing ways to tax vaping and e-cigarettes.There is also a commitment to look at taxes on sugar – an expansion of the sugary drink tax – and on plastics. No details are given. Previous taxes on plastic bags and on sugary drinks show that behaviour can be changed, though additional revenues are limited.

9. Local Property tax

Properties are due to be revalued for this tax in November, meaning changed payments in 2021.The programme promises that following this most households will not face an increased bill. However detailed work undertaken by the Department of Finance shows that under any new system – likely to involve lower rates possibly varying across the country – some householders would still find themselves paying more. It is possible that the revaluation could be delayed yet again for one more year as the new government tries to decide a way to do this. Whenever the change does come, people who have bought new homes since 2013 will find themselves paying the tax for the first time – they have been excluded as the government struggled to work out how to put a value for tax on these properties.

10. Electric cars

One of the notable commitments is to aim to have no new petrol or diesel cars registered after 2030. This points towards a continuation of the incentives to the public to switch to electric cars. A grant of up to €5,000 is currently available for those buying electric or hybrid cars as well as generous vehicle registration tax relief, a grant for installing a home charging point and low motor tax.

A study by the Department of Public Spending found that average support for those buying electric cars or hybrids at between €10,000 and €13,500 was among the most generous internationally. Many of the incentives are likely to be extended, though whether they might in future give less support to hybrid vehicles is an open question.

11. SMEs and entrepreneurs

The programme says that it is unfair that the self-employed earning over €100,000 a year pay an extra 3 per cent in USC on earnings over that level. It says, using best ‘Sir Humphrey speak’, that “ proposals will be considered to ameliorate this over time, as resources allow.” So it might be cut.

The earned income tax credit, now €1,500, which can be claimed by the self-employed, will rise to equal the €1,650 PAYE tax credit. This is a straight €150 cash gain. There is also a wider commitment to look at taxes and supports as they affect SMEs and entrepreneurs and capital gains tax as it applies to small businesses is mentioned specifically as being examined in each budget.

12. Housing

A new drive to develop affordable homes is promised, including a State-backed scheme. Affordable homes are designed for the middle ground who can’t afford to buy in the market but do not qualify for social housing. How this might work is not clear. In the meantime, there is a promise to retain and expand the help-to-buy scheme which assists first-time buyers to find a deposit via a refund of income taxes and DIRT.

The programme also promises to examine urgently the idea of State-backed mortgages for first-time buyers.There is also a commitment to develop a so-called cost rental model – a scheme where tenants can rent at a subsidised rate in generally State-owned properties. .

As well as this, there is the headline commitment to expand the local authority housing stock by 50,000 over five years. Local authority tenants will retain the ability to buy their houses, but only if they have lived there for 10 years and at a reduced discount.

13. Childcare

The programme promises to hold down costs for parents, to examine new funding models and to consider capping childcare fees. Paid parental leave it to be expanded. though no details or timing for this are provided. Free GP and dental schemes for children are to be expanded.

14. Cycling

The bike to work scheme is to be expanded – mention is made of increasing the subsidy for electric bikes and cargo bikes. Currently tax relief is available up to €1,000 – the limits may be extended for the more expensive e-bikes and cargo bikes.

15. Public Pay

There is a commitment to negotiate a new public pay deal – suggesting more increases after the current deal runs out in October. Public servants are due a final round of increases before then, but the programme says that the next deal will be dependent on how the national finances look and that the government will expect a continuation of the flexibility shown during the crisis and will also seek specific measures in different sectors.