The spring statement set the goalpost for the budget, but did not give us the detail. We don’t have the budgetary tables of who wins and who loses and by how much and the typical budget day examples such as “Mary”, the single public servant earning €40,000, or “Michael and Siobhán”, the couple earning €85,000. But clear hints have been dropped by Minister for Finance Michael Noonan and Minister for Public Expenditure Brendan Howlin about how the spoils of economic growth will be divided.
Some €1 billion was distributed in tax cuts and spending hikes in the 2015 package presented last October. For next October the indications are that there will be at least €1.5 billion to spare.
Here are five things that this all means for your pocket:
1 Lower tax and charges on pay packets: The Government cut the USC and income tax modestly in the last budget, with tweaks made to claw back some of the gains from those earning more than €70,000 a year. We can expect more of the same in the next budget, as Noonan confirmed when he launched a strong defence of the Government’s tax strategy. Tax cuts of over €600 million are expected next October, compared to €400 million last October.
If the Government is re-elected, Noonan made clear that we can expect more of the same in the years ahead.
Next October we can expect a further increase in the standard rate tax band – single earners now enter the higher 40 per cent income tax rate at €33,800 and this income limit will likely rise, benefiting anyone earning over that level. As happened last year, USC changes are likely to benefit lower and middle income earners in particular.
Last year’s budget boosted after-tax income by 1 -1.5 per cent for most earners with the biggest gains going to a group of lowest earners excluded from USC and to those on incomes of €35,000 to €75,000 for a single earner.
So if, as expected, the Government goes for a “same but a bit more” approach next October, the gains for many will be about 1.5 - 2.5 per cent in terms of a boost to take home pay.
Tax cuts will benefit people’s pockets, but the return of cash is gradual. Tax hikes during the crisis totalled about €10 billion. There were tax cuts of about €400 million last October and a further €2 billion might be affordable over the next three years. So in rough terms taxpayers might get a quarter of the emergency hikes back by 2018.
2Rising public sector pay: There is no doubt that rising public sector pay in some form is now on the agenda, with Howlin getting Cabinet clearance to commence talks with the unions. How much this will take of the €600 million - €750 million available for day-to-day spending increases next year is not clear. The public pay bill is about €14 billion so the gross cost of each 1 per cent rise is €140 million, though the net cost is lower as the exchequer gets about 30 per cent of any rise back in higher income tax. Howlin was cautious, but he did say in relation to public pay that “the unwinding of the measures will take time”.
The Government will consider increases – the issue is how quickly and on what basis. One option would be to focus initially on the pension levy, which was introduced in 2009 and takes about 7.5 per cent from an average public sector salary. Overall, however, like tax cuts, it is a long way back after pay cuts of 14-15 per cent for most public servants.
3Increases in Government payments and subsidies: Howlin mentioned the social protection budget as one area set to get more cash. This means more in payments in some areas. In the last budget, the monthly child benefit payment was increased by €5 and another rise can be expected in October. Last year the living-alone allowance paid to 180,000 older people was also increased and more of this kind of targeted payment rises can be anticipated too.
Howlin also referenced a special group examining childcare issues and more help for younger families looks likely. This could involve either subsidies for childcare costs or some kind of tax relief. A second free preschool year is also being examined, as is subsidised after-school activities.
4 No nasty surprises on the way: After the water charges row, the Government is going to do absolutely nothing to raise any additional taxes or charges, no matter how small. There was nothing in the statement that might cause even a hint of controversy. Noonan did say, however, that the property tax and water charges must remain in place.
5 Banking bonus: It is clear that the main banks are gearing up to cut their standard variable mortgage rates and that the Government will take whatever credit it can. Noonan said he will call in the main lenders and would not be likely to do so unless he felt that reductions were imminent.
Those in mortgage arrears are also promised more options in a new package to be unveiled over the next few weeks.
