Budget 2018: Five ways you might benefit next Tuesday - and one way you won’t
With a week to go some Budget measures now look very likely
Budget 2018 has thusfar been a quiet affair, with Minister for Finance Paschal Donohoe appearing to be largely successful in keeping his thoughts under wraps.
There have been few kites in the sky this year ahead of the Government’s annual pronouncements on how it’s going to spend its money or cut its tax revenues over the coming years.
Yes, Budget 2018 has thusfar been a quiet affair, with Minister for Finance Paschal Donohoe appearing to be largely successful in keeping his thoughts under wraps. However, some proposed measures now appear very likely at this stage.
And it doesn’t mean that there won’t be any surprises; after all, with an election looming Mr Donohoe is likely to take advantage of the platform the budget affords him.
So until then, here’s some of what we can expect next Tuesday.
Income tax cuts
It’s where we give up most of our tax, but don’t expect too much of a windfall come next Tuesday.
It now appears very likely that Mr Donohoe will press forward with his intention to increase the threshold at which people pay the higher rate of income tax, but the savings are likely to be moderate.
Currently the entry point to the 40 per cent tax rate for a single person is € 33,800, but raising the threshold would benefit some 550,400 taxpayers. Increasing it by € 1,000 would cost the Exchequer some € 202 million. However, while the cost is substantial, the savings to a taxpayer are not; a single person earning € 40,000 would save just € 200 a year for example, or €16.66 a month, while a married couple with two incomes would save € 400, according to the Irish Tax Institute.
Fianna Fáil however, has suggested that a better approach to alleviate middle income earners would be to cut the 5 per cent rate of USC to 4.4 per cent. This would save someone earning € 40,000 a year about € 106, or about € 250 for someone earning € 75,000. It would apply to a greater number of tax payers, at about 1.3 million.
The expected outcome now is that middle income earners will save on both fronts - ie through a higher standard rate band and a lower top rate of USC. However, the savings may not be worth much more than €20 or so a month.
Mortgage interest relief
Mortgage relief may be extended for homeowners at a cost of about € 100 million. The relief was due to expire at the end of this year, but the confidence and supply deal between Fianna Fáil and Fine Gael, which underpins the minority government arrangement, has committed to extending this beyond 2017.The relief currently benefits those who purchased a home between 2004 and 2012,a nd is worth about €850 on average a year. According to the Revenue Commissioners, some 292,448 homeowners currently claim the benefit.
The Taoiseach Leo Varadkar has previously indicated his preference for an increase in the State pension, and this has gained momentum, with a figure of € 5 a week put forward. This would see the rate of a contributory pension rise to € 240 a week.
Other welfare benefits include the extension of maternity leave to mothers in cases of premature birth.
Landlords to get some relief
Last year, the Government made some moves to relieve the tax burden on landlords, increasing the amount of interest allowable as a deductible expense from 75 per cent to 80 per cent, with a view to bringing it back to 100 per cent over five years.
While the Government looked set to go one step further and increase the threshold to 85 per cent - and maybe even hike it up even more- sentiment is now changing.
The significant presence of investors in the market, as evidenced by the ongoing level of cash buyers behind sales, has led some, such as Merrion Capital’s economist Alan McQuaid, to suggest that policy should in fact move in the other direction. It says that the Government should consider penalising property investors “looking to make a quick buck” to stop first-time buyers being priced out of the market.
Another area the Government could look at is allowing local property tax (LPT) as a deductible expense.
Boost for the self-employed
The differential in how PAYE workers and the self-employed are taxed is likely to be narrowed further this year. Introduced in 2016, the earned income tax credit allows self-employed workers to claim a tax credit similar to that enjoyed by those earning in the PAYE system. It currently stands at € 950, having been increased from the original € 500, but is still less than the €1,650 mentioned when the scheme was introduced. The Government will likely push this credit up again this year.
But some taxes will rise...
Sugar tax, cigarettes, alcohol, diesel; the Government is going to have to raise revenue from somewhere if it is to pay for the scale of tax cuts it has in mind. And this is where the “usual suspects” are likely to feature strongly.
The price of a pack of 20 cigarettes has increased over the last 15 years from €5.87 to €11.30 in 2017, and Ireland now has the highest rates of duty on tobacco products in the EU. However, there is still seen to be scope for increases, and the Tax Strategy Group suggested an increase of up to € 1 on tobacco.