ANALYSIS:For many who work in the private sector, this Budget may have no impact on household income, writes LAURA SLATTERY
BUDGET 2010 is a tale of two sectors, public and private.
The swingeing cuts in public sector pay were not accompanied by any changes to tax rates, bands or reliefs, with the result that, for many private sector workers, this Budget will have no impact on take-home pay.
And if you have no children and work in the private sector, your household income may not be affected at all.
Figures from PricewaterhouseCoopers (PwC) show that a public sector clerical officer on an annual salary of €33,505 will see their monthly take-home pay reduce from €2,105 to €2,020 as a result of this Budget.
This works out as €1,020 less a year. There is no change in take-home pay for a private sector worker on the same wage.
Over the course of the three budgets delivered by the Government since October 2008, few people have been left unscarred. But the package of measures announced by Brian Lenihan yesterday concentrated on three groups – families with children, welfare recipients and public sector workers.
All three could be represented within the one family, of course, which will make Budget 2010 an exceptionally harsh one for some households.
A dual-income family with children, where both parents work in the public sector, will face average pay cuts of 5-8 per cent on gross salaries, compounded by the €15-€16 a month cut in child benefit in respect of each child.
If their older children have reached their early 20s, have left the education system and are unable to find work in the moribund jobs market, they will have to survive on a lower rate of the jobseeker’s allowance than that applying to existing recipients. For new applicants, the rate of payment has fallen from €204.30 to either €100 (for 20-21-year-olds) or €150 (for 22-24-year-olds). The prospect of a generation of “boomerang kids” being forced back into the parental home beckons.
Although Lenihan spoke yesterday about the need to broaden the tax base, no low-paid worker was brought into the tax net as a result of this Budget. If there is pressure on private sector wages next year, this may lead to some workers falling out of the tax net.
But combine cuts to social welfare payments (of between 3.5 and 4.2 per cent) with the fact that there will be no immediate changes to taxation and the result is that welfare-dependent families will be disproportionately hit by the Budget.
Not all families will be worse off, however, thanks to measures introduced to compensate for the cuts to child benefit. A €6 per week per child increase in the earnings thresholds for the family income supplement (FIS) will result in higher FIS payments and mean some families who were not previously entitled to the payment will now be able to claim it.
According to figures from the Department of Finance, a single-income married couple with two children over the age of six and gross household income of €35,000 (just above the average industrial wage) will see their net income increase by 1.9 per cent.
This is because a FIS payment of €1,040 to which they were not previously entitled will more than cancel out a €384 annual reduction in child benefit, making such a family €656 better off per year.
It’s just a quirk, however, and most families with children will be poorer as a result of this Budget. Even in the above example, the family’s income is down 2 per cent since last October.
Apart from the cuts to child benefit and other child-related payments, prospective parents will face lower rates of maternity benefit, which will be reduced by up to €10 a week.
Elsewhere, Lenihan signalled that PRSI, the health levy and the income levy will be combined into one “universal social contribution” from 2011. But some mooted changes to tax and social insurance that would have affected higher-income earners – such as the abolition of PRSI ceiling – were conspicuous by their absence.
There was one measure that could curtail tax avoidance by wealthy individuals.
High-income people who use tax incentive schemes to reduce the amount of tax they are charged will have to pay an average of at least 30 per cent tax on their income, up from 20 per cent. Some restrictions on the use of tax reliefs will now apply to people with incomes above €125,000 – before yesterday, restrictions kicked in above a threshold of €250,000.
Older people have been somewhat protected by this Budget, with no cuts to State pensions for people aged 66 and over. However, older people spend a higher proportion of their incomes on fuel, meaning the eventual introduction of a carbon tax will be more noticeable for them.
Based on studies carried out by the ESRI, the overall direct impact of the carbon tax on households will be €2-€3 a week. Details of a “vouched fuel allowance scheme” to offset the increases for low-income families will be published next year.