Budget 2014: Government unveils raft of tax hikes, spending changes

Measures include the retention of reduced VAT rate for hospitality sector

 

A series of swingeing tax and spending adjustments aimed at reducing the State’s annual outlay by €2.5 billion were unveiled in today’s Budget.

Among the controversial measures announced were a lowering of dole payments to under-25s; a hike in prescription charges; a tightening on the eligibility criteria for medical card holders and the phasing out of the mortgage interest supplement.

Beer, spirits and cigarettes are all to go up by 10 cents from midnight, while wine is to go up by 50 cents, following on from last year’s €1 hike on the price of a bottle.

The Government comfortably won its first vote on the Budget in the Dáil tonight when the vote on the alcohol price increases was passed by 103 votes to 53.

In surprise move, the Government decided to keep the reduced 9 per cent rate of VAT on food and tourism services which has been credited with boosting job creation in the hospitality sector. However, there was no special VAT rate for the beleaguered construction sector which several industry groups had been lobbying for.

Instead Minister for Finance Michael Noonan announced the introduction of a new home renovation incentive scheme which will provide an income tax credit to homeowners who carry out renovation and improvement works on their principal private residences.

To further support the tourism sector, the controversial airport travel tax is to be scrapped in the hope that airlines will open more routes into the country.

“The purpose of this Budget is to continue the progress we have made; to reinforce policies that grow the economy; to establish the conditions which will create jobs; and to prepare for exiting the bailout programme,” Mr Noonan said.

The Minister said there would be no increases in income tax or the Universal Social Charge in 2014. There will be no increases in excise duty on petrol, diesel or on home heating oil and gas either.

As signalled in recent days, free GP care is to be rolled out to all children aged five and under, at cost of €37 million to the exchequer.

Minister for Public Expenditure and Reform Brendan Howlin described the move as the “first step in our programme to provide free GP care for all”.

However, he also announced a €1 hike in prescription charges to €2.50 - with an overall monthly cap of €23.

Mr Howlin said the Government would also carry out a review of all medical cards to remove ineligible and redundant cards.

The income threshold for over-70s for medical cards will also be lowered to €900 per week for a couple and €500 for a single person.

Dole payments for 22-24-year-olds will fall from €144 to €100 a week and 25-year-olds will get €144 instead of €188.

There will be no cuts to child benefit or the weekly fuel allowance, measures which proved controversial in last year’s budget.

On the household benefits package for the elderly, the €9.50 telephone allowance is to be scrapped, although other allowances for pensioners – including free travel, gas and electricity allowances, and the TV licence – are to remain unchanged.

The pupil-teacher ratio in public schools is also to remain the same but college registration fees are to be increased by €250, bringing the annual charge to €2,750.

Minister for Education Ruairí Quinn has already said the charge would increase by €250 until it reached €3,000 in 2015.

The Budget also provides for a hike in Deposit Interest Retention Tax (DIRT) to 41 per cent, which means savers will now have to hand over €41 for every €100 made in interest.

A new bank levy worth €150 million a year to the exchequer was also announced, which will be roughly based on each institution’s market share.

Mr Noonan said the levy — similar to those in other European countries — reflects the significant role played by the banking sector in the economic crisis.

Mr Noonan said the Government’s forecast deficit for 2013 was 7.3 per cent of GDP, for 2014, 4.8 per cent and for 2015, 2.9 per cent.

“We have beaten our deficit target during each year of our programme, and a deficit at 4.8 per cent will beat the target again next year.”

On the issues of mortgage arrears, Mr Noonan said: “Within the next 12 months I expect that the vast majority of customers who are currently in (mortgage) arrears will have been offered and accepted a sustainable solution.”

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