Analysis: How budget will boost disposable income

For the first time in more than six years Irish people have grounds for looking forward to a budget – or at least not dreading it. With more than €1.5 billion to play with this time out, there is an expectation that once Minister for Finance Michael Noonan takes his seat after his big speech we will be better rather than worse off.

There will be a reduction in the universal social charge (USC), the duty on cigarettes will go up by 50 cent, while alcohol might be spared. There might be a slight reduction in the duty on domestic fuels, and the tax burden on the self-employed will be eased by tweaking USC, PRSI and welfare benefits.

Capital gains tax is likely to fall, and property tax will be frozen at current levels.

USC cut

But what will it all mean? Of all the hints, the USC cut will have the most impact on most people’s take-home pay. The main USC rate of 7 per cent is set to be reduced to either 5.5 per cent or 5 per cent.

This rate applies on all earnings from just over €17,500 a year to just over €70,000. So for every €1,000 you earn over the minimum threshold each one-point cut in the USC will save you €10 a year.

Somebody earning €45,000 a year will gain €411 a year from a 1.5-percentage-point cut or just under €550 a year from a two-point cut. The cash gains are greater the closer you get to the €70,000 maximum.

If the USC is cut by 1.5 per cent someone on €70,000 would be better off by €786 a year. If Noonan cuts the rate to 5 per cent then the person on €70,000 will pay €1,048 less in tax next year.

According to the Irish Tax Institute, 1.28 million people earn over the minimum €17,000 threshold, and all of these would gain from a cut.

There will be other changes to the USC system. The 1.5 per cent rate which applies to earnings up to €12,012 and the 3.5 per cent rate which applies to the next €5,564 could also be cut.

There could be an increase in the income level at which people enter the higher tax rate. It currently stands at €33,800 for a single earner. If it rose to €34,800, it would see many taxpayers get a further €200 a year.

Child benefit is also likely to be increased. Last year in went up by €5 a month per child. If that increase was to be doubled, to €10 a month per child, a two-adult, two-child household would be better off by €240 a year.

The Government will keep the residential property tax at current levels at least until 2019, while water charges will be frozen too.

If Noonan implements changes at the most generous of the levels outlined, a two- adult, two-child household on a joint household income of €140,000 will be better off by €2,736 or €228 a month, while a two-adult, two-child household earning a combined €90,000 will be better off by €1,740 or €145 a mont