BU D G ET S P ECI A L
MANY workers will be better off financially next year than they would have been at the height of the Celtic Tiger in 2006 — as long as their pay packet is no more than €70,000. This is because many such earners will lose less of their income to tax under Budget 2018 than they did under Budget 2006. Not all of those earning up to €70,000 will end up with more take-home pay next year than they did in 2006 — but those that don’t should be close to bridging the gap.
However, high earners will still be considerably worse off next year than they were in 2006 — as it is largely these who have been worst hit by the extra taxes introduced by the Government during the recession. So the take-home pay of many high earners will still be much lower next year than it was at the height of the boom.
These are some of the findings of an analysis by the Sunday Independent into the impact of Budget 2018 on the pockets of workers, pensioners and single mothers on welfare.
For this analysis, we teamed up with experts at Pricewaterhousecoopers, Deloitte, KPMG, EY and the Irish National Organisation of the Unemployed (INOU) to find out which people will be worse — or better — off under Budget 2018 than they were in 2006. To ensure our figures were comparative, we assumed that the earnings or income for each of the individuals or couples we examined was the same in 2006 as it will be in 2018.
Some of those on social welfare are among the biggest winners of the Budget measures introduced since the Celtic Tiger, our analysis found. For example, a single mum on social welfare could now be getting more than twice as much welfare payments as she did at the height of the Celtic Tiger. Other winners include pensioners on modest incomes — and the self-employed.
Here’s the full lowdown. at the height of the Celtic Tiger in 2006 — and this is largely because less of your earnings are getting hit for the higher rate of income tax.
Budget 2018 has increased the point at which earnings get hit for the higher rate. So you will now pay the higher rate on earnings over €34,550 — rather than on earnings over €33,800, as had previously been the case. At €34,550, the amount you can earn before the higher rate is still below the average wage. However, the higher entry point for the top tax rate is a step in the right direction.
Another reason why your take-home pay is better off now than in 2006 is that the tax credit for PAYE workers is also higher today than it was back then.
At €30,193, you will take home €1,817 more pay (or €35 more a week) after paying tax next year than you did in 2006, according to Lauren Clabby, associate director with KPMG. You will still pay more tax levies (through the USC) next year than you did in 2006 (through the then health levy) and your PRSI bill will also be higher. However, you will pay less USC next year than you did last year due to the cuts announced in Budget 2018.
You don’t, however, get any benefit from the Budget 2018 cuts to the USC — as the USC does not apply to your State pension or private pension. (The State pension is exempt from the USC and so too is income from private pensions if that income is below €13,000 a year, as is the case for each individual in this couple.)
You may also be disappointed by the lack of movement on the inheritance tax thresholds in last Tuesday’s Budget. The Government had previously committed to increasing the tax-free threshold on inheritance tax from a parent to a child to €500,000. Last year, the Government raised that threshold to €310,000, allowing a child to inherit up to €310,000 from a parent without having to pay inheritance tax. However, this threshold wasn’t increased under Budget 2018 and so should you decide to leave your family home to one or both of your children, you may well trigger an inheritance tax bill for your children when doing so — depending on the value of the home. the amount of money you can earn as a married couple before getting hit for the higher rate of income tax.
The hike in commercial stamp duty however is a big downside of Budget 2018 —if you buy farmland next year, your stamp duty bill could be three times what it previously was.