All employees to be hit with 1% levy

Every employee in the state will pay a levy of 1 per cent on their salary, the Minister for Finance Brian Lenihan announced today.

The levy will apply to gross income up to €100,100 and a rate of 2 per cent will apply on all earnings over that level.

Mr Lenihan said the increase was part of the Government's attempt to fill a tax shortfall of up to €2 billion. The measure is expected to raise €815 million next year and €1,180 in 2010.

The levy will be charged on gross income, before any deductions for capital allowances or pensions contributions.

In announcing the measure Mr Lenihan told the Dail: "We realise the solidarity it demands of all taxpayers. But there is too much at stake: we all have too much to lose by not taking action now."

Mr Lenihan stressed that the levy will be kept "under review" and was being introduced in the context of a 10 per cent pay cut by Government ministers and secretary generals.