Budget 2018: Middle-income earners main beneficiaries in Donohoe's first outing

Rise in price of cigarettes and new sugar tax on sweetened drinks the key clawbacks

Minister for Finance Paschal Donohoe delivers the 2018 budget to Dáil Éireann.

 

Middle-income earners and two-income families were the main, albeit modest, beneficiaries of Budget 2018 with a combination of USC cuts and a widening of the top income tax band likely to deliver an increase of just under 1 per cent in average take-home pay.

In his first budget, Minister for Finance Paschal Donohoe also announced a raft of measures to tackle the housing crisis, including a new State-run lending vehicle to get builders on to sites, a doubling of the proposed vacant site tax levy and a bigger capital allocation for social housing.

The biggest revenue-raising measure and the one that drew the ire of the building lobby was a trebling of stamp duty on commercial property transactions from 2 per cent to 6 per cent, which is expected to net the exchequer nearly €400 million a year.

As expected, Mr Donohoe’s tax measures centred on cuts to the USC, which benefitted anyone earning more than €13,000 a year, the income limit at which people are liable for the charge.

The lower rate of USC was reduced from 2.5 per cent to 2 per cent, while the ceiling for this rate was lifted to €19,372 to ensure workers on the minimum wage do not pay the higher rate.

Rate

The Minister also reduced the standard 5 per cent USC rate to 4.75 per cent, which applies to the next €51,000 of income, thereby reducing the top marginal rate of tax on income up to €70,044 to 48.75 per cent.

Inside Business Budget 2018 Podcst

The threshold at which people enter the higher rate of income tax was also raised by €750 for a single person to €34,550.

The changes mean a person earning an average income of €36,920 will gain €246 per annum, or €4.76 a week, while a person earning €55,000 will gain €291 per annum, or €6 a week.

“We cannot hope to remain competitive if someone on a relatively low income and who decides to work a few hours’ overtime has nearly half that extra money taken in tax,” Mr Donohoe said.

Social welfare payments, including the State pension, the disability allowance, the carer’s allowance and both jobseeker’s allowance and benefit, will be increased by €5 a week as part of the €1.2 billion budget adjustment.

The only clawback from taxpayers was a 50 cent hike on the price of a pack of cigarettes but alcohol, petrol and diesel, perennial budget targets, were left untouched.

From next April, the Government will, however, introduce a new sugar tax of 30 cent per litre on sweetened drinks with more than eight grams of sugar per 100ml in a bid to combat obesity.

Measures

As flagged in advance, the budget contained a range of measures to address the housing crisis, including a hike in the proposed vacant site levy from 3 per cent to 7 per cent.

In practice, this means landowners who do not develop their land will pay the original 3 per cent levy in 2018 and then become liable for an increased rate of 7 per cent from 2019 onwards.

Mr Donohoe also announced plans to make up to €750 million of the Ireland Strategic Investment Fund (ISIF) available for a new State agency – to be known as the Home Building Finance Ireland (HBFI) – to provide cheap loans to developers.

There was also a commitment to build 53,000 social homes by 2021 with some 4,000 to be delivered next year, and an additional €149 million for the Housing Assistance Payment (Hap) scheme.

Mr Donohoe confirmed the establishment of the so-called rainy day fund in 2019, which will receive an initial capital injection of €1.5 billion from the ISIF and an annual payment of €500 million thereafter.