What will the Government target to raise taxes in next month’s budget?
While income tax is unlikely to rise, the Government may target pensions, USC, DIRT and capital gains tax
There’s no avoiding it. On October 15th, Minister for Finance Michael Noonan will deliver yet another austerity budget. It will be the seventh budget since 2007 with a common theme – falling social welfare payments and rising taxes.
While most people might be saying “enough” by now, the Government has to make further cuts if it is to stay on course with its adjustment of up to €3.1 billion. So how might it be done?
The Government has stressed that no income tax hikes are on the agenda. However, Anne Bolster, tax director with PricewaterhouseCoopers (PwC), says it is possible that an increase in the Universal Social Charge (USC) might be on the way for PAYE employees earning more than €100,000. A surcharge of 3 per cent already applies to self-employed people earning above this level. As such, Bolster notes, such a move would be perceived to be equitable.
Tax on unearned income
Another way of ensuring parity between those who are self-employed and those who are in the PAYE sector is to broaden the applicability of PRSI on unearned income.
Self-employed people have already been paying this, but from January 1st, 2014, it’s possible that everyone will have to pay tax on so-called passive income – which includes rental income, investment income, dividends and interest on deposits and savings.
“It would follow through that introducing PRSI for employees on other income would seem to be fairly fair,” says Bolster, although she adds that a “big question” would be how the tax might be implemented, given that PAYE employees typically – unless they own an investment property – do not file annual tax returns.
On the topic of PRSI, it might also be the case that the rate will be increased to 6 per cent for self-employed people, in return for better social welfare benefits.
It was only introduced this year, but it was done so at a rate – 0.18 per cent – lower than that originally envisioned. So is there scope for an increase?
Padraig Cronin, tax partner with Deloitte, thinks so, but adds that it’s unlikely to come this year.
“It would be very easy to move it up,” he says, but adds that he doesn’t think the timing is right for an adjustment in the short-term.
“When higher rate income taxes are back down at 40 per cent, you could counter it by increasing property taxes.”
In any case, it will feel like the rate has increased next year given that it will be the first year that people have to pay the tax at the full rate.
Tax on deposit interest has moved upwards steadily in recent years and, if the aforementioned application of PRSI on unearned income comes to pass, DIRT could be pushed up to 37 per cent.