Budget 2015: what’s in store for your finances?

Before we can work out if we can loosen our belts after next week’s budget, we need to take a look at who was hit by eight years of austerity

Austerity has characterised every Irish budget since 2008, when the economy plunged into a downward spiral.

While there may finally be relief of some sort on the horizon – and we’ll know for sure this day next week – what is certain is that whatever concession is made to the beleaguered taxpayer next Tuesday, it won’t be enough to claw back what most people have lost over the past six years.

Indeed a 1 per cent decrease in the higher tax rate will save someone on an income of €35,735 just €30 a year, or €422 for a higher earner on €75,000.

Since 2008, a succession of tax band increases, reduction in tax credits, and introduction of additional levies like the Universal Social Charge (USC), has pushed everyone's effective tax-rate up.

It will probably take a succession of further budgets to reverse this trend – if indeed it is Government policy to do so.

Not only that, but the charts presented today, of typical families all across the State, deal with income tax, and don’t consider the impact of additional expenses, such as the property tax.

So before we find out how the Government’s financial plan for 2015 will impact on us all, it may be worthwhile to consider just who has lost the most over the past eight years – and who has actually come out on top?

Pensioners

1 per cent increase in take home pay over

2007-14 It might surprise, but pensioners are the big winners of the past eight years.

Despite a jump in the effective tax rate for a couple earning €48,000 from 3.42 per cent to 6.80 per cent, pensioners have nonetheless seen their take home pay increase.

This is largely due to the significant increases in pension from €10,884 in 2007 to €11,976 in 2009. It has largely remained the same since.

"Pensioners did make some contribution when the Universal Social Charge was introduced (albeit on non social welfare income) hence a slight tapering from 2011," notes Sean Walsh, senior tax manager with PricewaterhouseCoopers.

Public-sector worker

6.2 per cent decrease in take home pay over

2007-14 A nurse, teacher or civil servant on an income of €37,000 would have brought home €2,544.54 a month back in 2007.

A jump in their effective tax rate to 22.62 per cent however, means that public sector workers have seen their net income decline.

And, given that our profiles only track the changes in tax/USC/Levies/PRSI in the period 2007-14, in order to keep some consistency between the profiles, this figure does not take into account the impact of the pension levy.

Low-income earner

6.8 per cent decrease in take home pay over

2007-14 Back in 2007, a single person on a salary of €19,000 would have paid no income tax, just PRSI at a rate of 2.6 per cent.

However, the impact of the late minister for finance Brian Lenihan’s decision to bring more people into the tax net, has resulted in an annual loss of income for someone in this wage category of €1,253.

Thanks to a combination of income tax, PRSI and USC, this person is now contributing 9.2 per cent of their income to the Government’s coffers, up from 2.6 per cent in 2007.

Married-dual income

8.2 per cent decrease in take home pay over

2007-14 A married couple earning €120,000 together will have seen their income plummet by €589 a month, or €6,599 a year, pushing their take-home pay down by a sizeable 8.2 per cent.

The introduction of the USC was a key factor in diminishing their after-tax salary, resulting in their effective tax rate rising from 27.99 per cent up to 33.88 per cent.

Middle-income couple

10.1 per cent decrease in take home pay over

2007-14 Back in 2007, an unmarried couple earning €90,000 would have taken home €5,013 a month.

Now however it has shrunk to €4,506, and the couple is further penalised by virtue of not being married, as they would get to keep an additional €300 a month due to sharing tax credits if they were.

High income business owner

12 per cent decrease in take home pay over

2007-14 You might expect someone earning €175,000 a year to pay more in tax – and as our example shows, that individual

is bringing home €1,118 less a month, or €13,413 a year, than he was back in 2007.

But tax decisions over the past eight years have also increased the burden on such taxpayers, relative to others, decreasing their take home pay by the order of 12 per cent.

Higher earners have seen the greatest hit on their incomes over the past eight years, as their effective tax rate jumped from 36.1 per cent back in 2007, up to 43.77 per cent this year.

Why higher earners have suffered so much is due to reasons such as the abolition of the ceiling on PRSI back in 2010, and the introduction of the Universal Social Charge.

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