Measures target higher earners

TAKE-HOME PAY:MIDDLE AND higher earners will bear the brunt of the revenue-raising measures unveiled in yesterday's draconian Budget.

“Those who can best afford it will pay most” was a message reiterated by Minister for Finance Brian Lenihan throughout his speech yesterday.

The doubling of income levy rates to 2 per cent, 4 per cent and 6 per cent, and the lowering of the relevant thresholds delivered the most severe blow to taxpayers’ pockets.

From May 1st, individuals earning more than €75,036 will be hit by the 4 per cent rate, while the 6 per cent rate will apply to income over €174,980. These higher rates are only charged on the portion of the individual’s income that exceeds the relevant threshold, not on all income.

Anyone earning just over €75,000 will also pay the higher health levy rate, which has been doubled to 5 per cent.

The PRSI ceiling – above which the 4 per cent charge does not apply – is being increased from €52,000 to €75,036, another measure that hits high earners. “The brunt of the significant personal tax increases are on middle and high earners,” the Irish Taxation Institute said yesterday.

Homeowners who took out a home loan more than seven years ago will lose their entitlement to mortgage interest relief, while property investors will only be able to write off 75 per cent of their interest repayments against tax on rented residential properties. Investors face a capital gains tax charge at an increased rate of 25 per cent if they decide to dispose of assets and realise a gain. Capital acquisitions tax was also brought up from 22 per cent to 25 per cent.

Savers did not emerge unscathed either. Deposit interest retention tax (Dirt) is increasing to 25 per cent, while the tax rate on certain other savings products will increase to 28 per cent.

Meanwhile, the existing 2 per cent levy on non-life insurance premiums will be increased to 3 per cent, while a new 1 per cent levy will apply to life insurance policies. This levy will apply to premiums received by the insurer on or after June 1st.

“In the run-up to the Budget, the mantra coming out of Government was that ‘those who can afford to pay the most will pay the most’,” said Alan McQuaid, chief economist with Bloxham stockbrokers. “But the specific targeting of high-income earners appears to be a ploy to win the Government some breathing room with the trade unions.”

The Budget was tough on young families, as the early childcare supplement introduced during the boom years is to be phased out. The monthly payment is to be halved on May 1st and abolished by the end of the year. The Minister said it would be replaced in January 2010 by a preschool scheme.

While middle and higher earners will be hit hardest, lower earners will also see their disposable income shrink.

Those who were previously outside the income levy net will now find themselves subject to a 2 per cent charge if their earnings exceed the new, lower entry point of €15,028.

Social welfare rates remained largely unchanged, although the Minister warned that child-benefit payments may become means tested or taxed in the budget for next year.

Jobseeker’s Allowance is to be cut for new claimants under the age of 20 from the first week of May.

Smokers will pay 25 cent more for a packet and diesel is up five cent a litre.