Where deepest cuts and tax hikes will hit hardest
While leaks about the contents of today’s budget were contained compared with last year, the shape of the €3.5 billion in adjustments have emerged in the past few weeks, especially last weekend when the Government signed off on most of the big-ticket items.
Almost €1 billion in new taxes will have to be raised, as there is €250 million of the full-year effect of measures from last year’s budget.
A bulwark of this will be property tax. It will be levied at 0.18 per cent of the value of the property. The late decision to add a so-called mansion tax on houses worth more than €1 million meant the rate reduced from 0.2 per cent.
This measure was introduced as a quid pro quo to Labour following Fine Gael’s rejection of a 3 per cent hike in the USC rate for PAYE employees earning more than €100,000. It is mostly symbolic as the proportion of houses worth over €1 million is tiny.
The property tax could generate €250 million in revenue during the six months it operates in 2013.
Another big change in the offing that has not attracted the same publicity is the scrapping of the €127 exemption from PRSI for all those earning over €352 a week. That will cost each taxpayer some €261 per annum and will yield more than €300 million to the exchequer in a full year.
It could prove controversial as it will affect lower income groups proportionately harder. Other PRSI changes will be extended to unearned income, such as rental and share income. That could bring in up to €80 million in additional revenues.
This Government has rowed back on the previous administration’s commitment to reducing tax relief on private pension contributions from 41 per cent to the standard 20 per cent, but has instead targeted a maximum annual pension of €60,000.
The group in society least affected in recent budgets has been pensioners. There may be some changes to the more generous tax exemptions available to over-65s, as well as the lower rate of the top USC band available to over-70s with income of €16,000 or more.
However, the wholesale changes floated two months ago will not now materialise but the gap will be closed. At present, a person over 70 with an income of €40,000 pays €3,500 less tax than someone under 65 on the same income.
Universal social charge
The pressure from Labour to have the USC rate for PAYE workers earning over €100,000 increased by 3 points to 10 per cent has come to nought. Fine Gael never bought the Labour arguments and its Ministers dug their heels in, demanding a comparable cut of 3 per cent in social welfare rates.
That was never going to happen.
The likely increase in motor tax and vehicle registration tax is a steep 15 per cent with low- emission cars no longer enjoying an advantage. A combination of people buying CO2-efficient cars and a collapse in new car sales has meant the State’s take fell from €1.4 billion in 2007 to €387 million in 2011, with strong indications of further sharp drops in 2012.
Tobacco and alcohol
The old reliables also face increases. There is a Government commitment to deal with the sale of cheap alcohol in off- licences, although sharp hikes might lead to renewed cross-Border purchases of alcohol and tobacco.
A 50 cent increase for a packet of cigarettes would be worth €81 million to the exchequer. A 20 cent increase in excise duties on beer and spirits and a 50 cent jump in excise on wine would garner €156 million in additional revenues in 2013.