Budget does little to offset PRSI changes due next month

Employees who were hoping that the Minister for Finance, Mr McCreevy, would mark a return to the days of giveaway budgets when he stood up in the Dáil yesterday afternoon will be feeling a touch disappointed today. Una McCaffrey reports.

Budget 2004 will amplify the negative impact of the application of PRSI and the health levy to benefits in kind. This move was announced in Budget 2003, but does not come into effect until next January.

In many cases the impact of the new system will negate any increase in take-home pay that would otherwise have been created yesterday.

This additional PRSI and levy burden will, for example, mean that an individual who earns less than the new PRSI ceiling of €42,160 but has benefits in kind of €4,000 or more will see their take-home pay decline rather than grow next year. The same will apply to employees who earn more than the PRSI ceiling and have benefits in kind in excess of €12,000.

Even workers whose benefits in kind do not surpass these thresholds will feel some pain, with the gains that they might otherwise have registered yesterday certain to be eroded on closer inspection.

The accompanying table illustrates how employees' pay packets will change before individual benefits in kind enter the picture. To read the table, taxpayers must first select the gross annual income closest to their salary. They should then move across to the marital status column that best matches their own and be able to see how Budget 2004 will affect their take-home pay.

The figures under A differ from those under B to reflect the lower rate of PRSI that applies to some older public-sector workers. The vast majority of employees will fall under A.

The table shows that yesterday's Budget was, in broad terms, most beneficial for employees who earn less than the new PRSI ceiling, since they will be the ones to gain most from the increase in the employee tax credit from €800 to €1,040. This will mean, for example, that single workers earning less than €42,160 should see their monthly take-home pay expand by €20.

As people move above the PRSI ceiling, their gains will naturally begin to erode. For example, the monthly increase for single workers earning in excess of €50,000 will be no more than €15.

A number of groups will meanwhile see absolutely no difference in their pay. Married couples where both spouses work and combined income is less than €25,000 will, for example, be unaffected. Those earning between €30,000 and €80,000 will however gain €40 per month.

Married couples where one spouse earns a salary of €20,000 will be better off by at least €14 per month, with those earning one salary of between €22,500 and €40,000 taking home an extra €20 each month.

It should also be recalled that Mr McCreevy has neglected to raise tax bands according to inflation. The effect of this hands-off approach - which AIB economist Mr Oliver Mangan describes as "bracket creep" - will be to push more employees into the 42 per cent band as their salaries rise, thus increasing their tax burden.

Calculations from Goodbody Stockbrokers show that the effective tax rate will rise for all individuals earning €30,830 or more per year, or all working couples earning in excess of €61,660.