Tax increases for pensioners under review

The Government is considering targeting the lower tax rates paid by pensioners in next month’s budget as well as making cuts to universal allowances for over-70s that cost the State more than €400 million annually.

Discussions have taken place within departments about increasing the contribution of over-65s as part of the €3.5 billion budgetary adjustments.

Senior sources said there was a growing view those over 65 have remained relatively untouched by cutbacks and tax increases in recent years. It is a theme that has been consistently raised by the EU-IMF-ECB troika in reviews of the bailout programme.

Targeting pensioners is seen as politically sensitive. In a staff paper in September, the IMF argued that universal allowances paid to pensioners were too generous and were unsustainable in the long term because of the State’s ageing population.

The household package pays subsidies of more than €850 per annum to all over- 70s for electricity, phone use and television licence. It costs the State €335 million per annum.

On the tax side, over-70s pay a top rate of 4 per cent on the universal social charge, compared to 7 per cent for others. In addition, over-65s benefit from more generous tax exemptions and an age-related tax credit of €245, or €490 per couple. Taxpayers under 65 earning €40,000 pay €2,800 more in taxes than those over 65, and €3,500 more than those over 70.

“The case for increasing contributions from pensioners is beyond dispute morally, economically and financially. But politically it’s seen as the great impediment,” said one source.

Minister for Social Protection Joan Burton will not alter the State pension in the budget, but is likely to tighten up on eligibility for the household package. Lowering tax exemptions and credits for older people is also being considered.

Eamon Timmins of Age Action Ireland said claims of pensioners being unscathed were “ill-informed”.

“There are 900,000 home-help hours being cut. Some are in dire circumstances.”