Higher earners will benefit most from the 1998 Budget measures announced by Mr McCreevy. The concentration on cutting tax rates while making only small increases in allowances and in the standard rate income band means that the Budget measures will benefit higher earners most.
Higher tax allowances, lower tax rates and wider tax bands mean that all taxpayers will be better off in the 1998/99 tax year. But higher earners will benefit most. They will get the benefit of the measures that all standard rate taxpayers will get but they will also benefit from the two percentage point reduction in the top tax rate to 46 percent.
Cuts in tax rates benefit higher earners most and there have been reductions in both the standard and the top tax rates.
A single person on an income of £20,000 will see annual take-home pay increase by £463 or 2.3 per cent as a result of the new tax measures alone, before the impact of the PRSI changes are taken into account. But the tax gain for a single worker earning £10,000 will be £186, or 1.86 per cent, while the tax gain for a single person on £45,000 will be £963, or 2.14 per cent.
A married couple with one earner and no children on an income of £10,000 will gain £104 or 1.04 per cent from the tax measures. A couple on £20,000, will gain £388, or 1.94 per cent while a couple on an income of £50,000 will gain £1,142, or 2.3 per cent. Increases in personal allowances and widening of standard rate band means that more of a taxpayers income is removed from the tax net and means that fewer people will pay tax at the top rate. The increases in the basic personal allowances means that more income is protected from tax while the wider standard tax band means that more income is taxed at the standard rate. In 1998/99 a single person on the normal basic allowances will be able to earn up to £13,950 in the next tax year before moving on to the top tax rate.
In the current tax year the same single taxpayer moves up to the top rate when income exceeds £13,600. A married couple (one income) will be able to earn up to £27,100 before moving to the top tax rate (£27,900 where both spouses are earning). In the current year the comparable figure is £26,400 (or £27,200 with two earners). The increases in the basic allowances means that the first £3,950 of a single person's income will not be taxed next year, up from £3,700 in the current year. That £250 increase in the amount of tax free income will be worth £60 to a standard rate taxpayer and £115 to a top rate taxpayer next year.
For a married couple with one earner the first £7,100 is free from tax, up from £6,600. The extra £500 of tax free income will be worth £120 to standard rate taxpayers and £230 to top rate taxpayers.
The widening of the tax bands up £100 to £10,000 for a single person and up £200 to £20,000 for a married couple means that a little more income will be taxed at the new lower tax rate.
But the reductions in the tax rates make the biggest impact. The cut in the standard rate from 26 per cent to 24 per cent will mean an extra £2 in every £100 of income taxable at that rate (within the new ceilings of £10,000 for a single taxpayer, and £20,000 for a married couple). For top rate taxpayers the cut in the top rate from 48 per cent to 46 per cent will mean an extra £2 per £100 of income taxable at the higher rate. A single taxpayer earning £40,000 will pay £863 less tax next year as a result of the tax rate changes, while another single taxpayer earning £13,000 will only save £246. The increase in the PRSI contribution weekly income exemption from £80 to £100 will benefit all taxpayers up to income levels of £25,000. The extra £20 of weekly income that will be exempt from PRSI contributions will mean an extra £3.90 per month for all earners up to £23,200. At income levels above £25,000, the negative impact of the increase in the ceiling from £23,200 to £24,200 will wipe out the positive effect of weekly exemption increase. People earning more than £25,000 will end up paying more PRSI.
Taxpayers with children will gain from the increases in child benefits - up from £30 to £31.50 for each of the first two children and from £39 to £42 for subsequent children.
But taxpayers with Special Savings Accounts will lose out because the tax rate on interest earned will increase from 15 per cent to 20 per cent. But on a positive note the cut in capital gains tax - paid on profits from the disposal of assets - from 40 per cent to 20 per cent will be welcomed.
Overall, higher earners with assets will be pleased with Mr McCreevy's measures.