Families may face additional €3,000 tax burden in budget
PAYE households may face an additional tax burden of over €3,000 next year following December's Budget, a report claims.
Pre-budget research by business advisors Grant Thornton anticipates increased PRSI and Universal Social Charge (USC) contributions, as well as reduced pension relief and the widely flagged property tax.
The consultants predicted tax increases for families of between €3,000 and €9,000 depending on salary levels and family circumstances.
They expect an increase in the USC from 7 per cent to 8 per cent, and to 10 per cent on incomes above €100,000.
In addition, the consultants predict an extension of employee PRSI to cover non-employment income such as dividends and rents on property investments.
They further predict a reduction in tax relief on pension contributions from 41 per cent to 20 per cent.
Grant Thornton tax partner Peter Vale said there would be a lot of talk in the budget about income tax rates not being increased but “the reality is that disposable incomes are going to take a major hit even if the headline top rate of income tax stays at 41 per cent”.
“Under every scenario we have run, tax bills rise by more than 10 per cent. The government faces stark choices if it is to meet commitments made to the troika. Somewhere in the Department of Finance, officials are running numbers in spreadsheets and every outcome is likely to be unpalatable.”
The consultants expect a property tax to be levied from July 2013 at 0.25 per cent of a property’s value.
They also expect increases to motor tax rates, higher deposit interest retention tax (DIRT), and hits on cigarettes and alcohol - the so-called ‘old reliables’.
“Recent comments by Minister for Social Protection Joan Burton suggest that as an alternative to reducing tax relief for pension contributions from 41 per cent to 20 per cent, a cap on the overall pension fund size may be introduced,” Mr Vale said.
“Those nearing the end of their careers, who have prudently built up their pensions savings, may not benefit from this alternative approach and could potentially lose tax relief completely on future pension contributions.
“When you bear in mind that practically all pension funds are subject to the new 0.6 per cent pension levy, the position is bleak for those looking to save for the future.”
Mr Vale said it was difficult to envisage a Budget next month that was not “painful for everybody”.
“With at least €3.5 billion euro being sought from expenditure savings and tax increases, we will all be feeling considerably less well off on December 5th.”
He said “a big concern” had to be how badly the changes would impact on consumer demand next year, thus limiting potential for growth in the economy.
Fianna Fáil spokesman on Social Protection Willie O’Dea called on Ms Burton to be clear on the future of child benefit, criticising what he termed the "incessant kite-flying" over the social welfare budget.
“It is now time for the Minister to stop the spin and make an up-front statement on this matter. Families need to prepare themselves for what is coming and the endless speculation and leaks can only be stopped by the Minister being clear - will cuts to child benefit be part of the equation in December or not?"