Most consumer-friendly budget ‘since age of austerity’
Quintessential election budget must be assessed in light of cuts post-2008, however
A double-income, two-child household in which both adults earn €70,000 a year will be the big winners in the current Government’s final budget.
Such a couple will be better off by close to €2,000 in 2016 when all the changes are totted up – but before they get the happy-days-are-here-again bunting out, they should probably remember they – and almost every other taxpayer – will still be substantially worse off than they were back in 2009 when 21st-century Ireland was first introduced to the concept of austerity budgets.
Since then, changes to income tax have seen average net income fall by about 5 per cent, or about €2,000, for someone earning €40,000 a year.
More than €3,500 has been taken from a household or individual with an income of €70,000. In many cases, people have also had to contend with wage cuts of between 5 and 15 per cent.
It is in this context that what must be viewed as a quintessential election budget will have to be assessed.
The centrepiece of what is still undeniably the most consumer-friendly budget since the dawn of the age of austerity seven years ago was the widely anticipated cut in the main Universal Social Charge (USC) rate.
There were no surprises, inside or outside the Dáil chamber, when Mr Noonan announced a 1.5 percentage point reduction in the 7 per cent rate which applies from next year to all income from €18,668 a year to just over €70,000. The cut will see that rate of USC fall to 5.5 per cent. The 3.5 per cent and 1.5 per cent rates will be reduced by half a percentage point each.
About 1.3 million taxpayers will gain from what will be seen as the kindest cut of all. Somebody earning €45,000 a year will be better off by €411 in 2016 as a result of the 1.5-percentage-point cut, and the cash gains are going to be more substantial the closer a person gets to the €70,000 ceiling. With a 1.5 percentage point cut, someone who earns €70,000 will be better off by over €901 a year.
The USC entry threshold goes up from €12,012 to €13,000, which will take at a stroke about 42,500 workers from the scope of the charge. More than 700,000 income earners will not be liable to USC from next year.
The €5 per child increase in the Children’s Allowance will add a further €120 to the take-home total of the two-adult, two-child house which means that, in a household where the combined income is in the region of €140,000, families will be better off by more than €1,900 a year.
If a household has two children aged between six and 12 years of age, they are likely to see their spending power enhanced even further. The Free GP scheme is to be extended to children under the age of 12, which will save most affected families a further €200 a year, assuming two GP visits per child per year.
Motor tax changes
The first expansionary Government budget since the Fine Gael-Labour coalition came to power in 2011 also saw changes to the motor tax regime.
A tax credit for the self-employed, which drew parallels to the €1,650 PAYE tax credit, will be given to the self-employed and farmers. It will be rolled out over a number of years and will be worth about €550 next year.
Mr Noonan also increased the tax credit for people who are carers in the home from € 800 to €1,000, and the inheritance tax threshold for children inheriting from parents will rise to €280,000 – the start of a process that will see it increase to €500,000 over a three- to five-year period.
State pensions will go up by €3 per week, the Fuel Allowance is to be increased by €2.50 a week, and the Christmas bonus for social welfare recipients will be restored to 75 per cent of the recipient’s weekly payment.
This means a pensioner on the current rate of €230 will receive a bonus of €173; a dole claimant receiving unemployment benefit of €188 will get a bonus of €141.