ANALYSIS:Tax hikes and other stinging changes are beginning to grind many of us into the ground

PEOPLE WERE understandably shocked by the scale of the tax increases and swingeing cuts announced by Brian Lenihan in early December but it is only this week as the first pay cheques of the new year arrive that people are feeling the full impact of the new era of austerity.

Families on relatively low salaries will see thousands of euro taken from their annual income. Few, if any, can think of ways they can offset the impact of the cuts.

Changes to the tax bands and credits have seen more than 132,000 extra people brought into the income tax net. An additional 84,000 people will find themselves paying tax at the higher rate of 41 per cent this month, many of them for the first time.

A single person working in the private sector earning a salary of €45,000 and making an annual pension contribution of €3,300 will see their net income fall by €1,101, a drop of 3.4 per cent.

The majority of the reduction will be accounted for by a 10 per cent drop in tax credits and a widening of the tax base by the same percentage.

A public sector worker in a similar position will be slightly less worse off and will lose €1,053 a year, down 3.2 per cent.

A married couple with three children and one income from the private sector totalling €75,000 and contributing €4,500 to their pension pot each year will see their net income fall by €1,815 or 3.6 per cent.

This is not the full story. They will also lose a further €40 a month in reduced children’s allowance so their losses rise to €2,295 each year.

Their public sector counterpart will be worse off to the tune of €1,705, not including the reduced children’s allowance, a drop of 3.4 per cent.

Then there are pension implications. From January 1st, 2011, pension contributions ceased being deductible for PRSI purposes. They are not deductible for the universal social charge (USC), which has replaced the health levy and income levy. The top USC rate of 7 per cent is likely to apply to income being used to make pension contributions.

The universal social charge appears to be causing most people the most hardship, with many of those who were exempt from the levies now being hit with the full whack for the first time. Some people are discovering that they will be paying close to €1,000 a year extra in USC payments alone.

The cold, hard numbers do not really tell the full story. Last week people were lining up on Twitter to tell The Irish Times how badly they had been affected.

“I earn €34,500 a year and am hit for €36 per week,” said one reader. “I am down a total of €288 this month between wage and child benefit, absolutely ridiculous,” said another.

“Take home pay now back to June 2006 levels, down 17 per cent since November 2008,” said a third. “January payslip arrived this morning €82.42 monthly reduction. Ouch,” was another response.

Elizabeth Dyer from Dublin 3 works in a Dublin university and was paid yesterday. She was dismayed to see that she will be worse off to the tune of just under €200 a month this year. Her partner, who has yet to be paid, is likely to be similarly hit. This means the couple, who have two young children – a further deduction of €240 a year – will be down almost €5,000 this year, a large financial hole to fill, by any measure.

While Dyer and her family are going to struggle to make ends meet this year, she is comparatively fortunate.

The same cannot be said for Fiona Whelan from Dublin 8. As a public servant, she gets paid every two weeks and got her first pay cheque under the new tax system earlier this week. The changes have hit her very, very hard and, all told, she is worse off to the tune of just under €190 a month.

“I’m a full-time working single mum and was struggling before. I’ll probably go under now,” she says.

In the short term, things could scarcely look much bleaker for her. As a medical card holder, she was exempt from the health levy and had a single-parent tax credit and an incapacitated-child tax credit – her eight-year-old son has autism. She is now being hit with the full universal service charge of 7 per cent and has seen the tax credits cut.

“As a public servant, I’ve been hit doubly hard. I lost around €250 a month in the cuts two years ago and now I’m down €180 a month plus a further €10 in child benefit.”

In total, her net salary has fallen by €440 a month over the past two years. That would be financially painful for most people with a very good income to cope with; it’s even harder for Whelan who earns €39,000 a year.

“I was really struggling before this and, some months last year, I couldn’t afford to pay my mortgage. Other months, other bills went unpaid and all of this debt is mounting up.”

She missed her mortgage payments for five months last year. She can’t even borrow money from her credit union as she has a loan outstanding. There are very few areas in which she can cut back. She knows that, this year, there will be no holidays, very few nights out and no new clothes for her or toys for her son.

“It really is impossible and I don’t know how I am going to make it. We are living hand-to-mouth and don’t have anything close to an extravagant lifestyle.

“The thing that really bugs me is that I would actually be better off on the dole but I really want to work.”

When she read about the Budget in December, she says she was shocked but thought she would be down about €10 or €20 a week.

“I think they have hit the vulnerable very hard – and to cut back on the incapacitated-child tax credit is the lowest of the low.”

One woman's words

Fiona Whelan earns €39,000 a year.

She’s down about €190 a month, and her net salary has fallen by €440 a month over the past two years

“I’m a full-time working single mum and was struggling before. I’ll probably go under now . . . I would be better off on the dole . . . To cut back on the incapacitated-child tax credit is the lowest of the low

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