Tax changes dominate Budget as pensions and welfare rise

A €1.25 billion package of tax changes, including a one percentage point cut in the top rate, an increase in tax credits and …

A €1.25 billion package of tax changes, including a one percentage point cut in the top rate, an increase in tax credits and a widening of tax bands, was the central feature of the Budget announced yesterday by the Minister for Finance. Stephen Collins, Political Correspondent, reports

As expected, there were also substantial increases in pension and welfare payments. Mr Cowen increased the contributory pension to €209.30 a week, while the non-contributory pension will be €200 from next January.

Mr Cowen also substantially increased tax relief on mortgage interest for first-time house buyers, including people who bought their first homes within the last seven years as well as future buyers. But he did not make any changes in stamp duty, arguing that any reduction would end up in the pocket of the seller rather than the buyer.

The Minister told the Dáil that a couple with a joint mortgage of up to €379,000 over 33 years at an interest rate of 4.5 per cent would gain up to €1,600 extra a year in mortgage interest relief directly credited against their mortgage bill. Single people would gain up to €800 a year.

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There was a clawback on high-income earners with an increase of half a percentage point in the health levy to 2.5 per cent on their earnings in excess of €100,100 a year.

A 25 per cent increase in the charge for private hospital beds will inevitably feed into higher VHI payments for middle-income earners in the coming year.

Mr Cowen announced that the top rate of income tax would come down by another one percentage point next year if the coalition was re-elected. This point was later emphasised by Tánaiste Michael McDowell, who denied that PD concerns had been largely ignored in a Fianna Fáil-style Budget.

Mr McDowell said he was happy with the Budget and had agreed with Mr Cowen and the Taoiseach that the best way to help first-time house buyers was through extra mortgage interest relief.

"What Brian Cowen and myself and the Taoiseach agreed was that it would be better to do it over two years. We don't want to set off inflationary pressures on the economy at this stage when things are going so well, but the commitment is there."

One of the few surprises in the Budget was the hike of 50 cent in a packet of 20 cigarettes, which now brings the price to over €7. Mr Cowen said it was a public health measure and he expressed the hope that the social partners would agree to some or all of the increase being discounted in the inflation figures.

Mr Cowen told the Dáil that his Budget would reward work by reducing the tax burden for all. It would support pensioners, the disabled and those in need and help young families and first-time buyers. "I am satisfied that in the present economic circumstances, this Budget is fiscally sustainable, economically appropriate and socially responsible," he said.

The main Opposition parties attacked the Minister's approach to taxation and accused him of rigging the figures in an effort to disguise the fact that the Government had failed to honour its commitment that only 20 per cent of taxpayers would be left on the top rate.

They also maintained that the tax relief for first-time buyers would be nullified by the interest rate increase expected to be announced by the European Central Bank today.

Fine Gael finance spokesman Richard Bruton said: "The Minister has changed the basis of his calculations to disguise the fact that 31 per cent of taxpayers will be paying at the higher 41 per cent rate next year. That means that 235,000 people have been let down by a Government that has failed to honour a clear commitment."

Mr Bruton said that one-income families had been betrayed by the Government as, for the sixth year in a row, there was nothing in the tax code for the spouse working in the home.

"People caring for their children in the home are being airbrushed out of the tax code."

Labour's finance spokeswoman, Joan Burton, said that serious injustices had been inflicted on those who were being forced to pay the higher tax rate, plus PRSI on very modest overtime payments or on bonuses or wage increases.

"This is a typical Fianna Fáil/PD Budget, a Budget for the wealthy few, not the hardworking many.

"We have headline reductions in taxation which will be welcomed by hard-pressed families, but the secret of the tax code in Ireland remains the fact that tax is often for the little people," she said.

Green Party leader Trevor Sargent said that for all the revenue at his disposal, Mr Cowen had shown no real awareness of the challenges facing Ireland from climate change and peak global oil production.

Sinn Féin Dáil leader Caoimhghín Ó Caoláin welcomed measures for those on low incomes, but said he "could have done much much more if he had chosen to".

"The biggest problem with today's Budget is that once again this Government has shown that they have absolutely no strategy to address the core needs of ordinary people whether it is in health, education or housing," he said.