Were we all better off in the year of the bank guarantee?

Pensioners are the only ones who will be better off under Budget 2017 than they were in the year Irish taxpayers bailed out the banks to the tune of €440bn — but even still, our Budget analysis has found that our pensioners are only getting €3 more a week

IT’S just over eight years since the €440bn bank bailout — and while the Irish banks are now back making money, many people are still worse off than they were in the year of the bank guarantee. Indeed most of us will still be hundreds (if not, thousands) of euros worse off under Budget 2017 than we were in 2008 — the year that Irish taxpayers guaranteed all loans and deposits in the country’s banks and building societies — an analysis by The Sunday Independent has found. The Irish banks, on the other hand, are back in profit.

When announcing his Budget speech last week, Finance Minister Michael Noonan was quick to point out that the increase in excise duty on a pack of cigarettes was the only tax hike included in Budget 2017. Despite this, many people will still have less take-home pay next year than they did in 2008 — the year the Government put a bank guarantee scheme in place to protect the Irish banks from the financial crisis at the time.

So when it comes to take-home pay, how much worse or better off are you under Budget 2017 than you were in 2008? The Sunday Independent teamed up with experts at PricewaterhouseCoopers, Deloitte, KPMG, Ernst & Young (EY) and the Irish National Organisation of the Unemployed (INOU) to find out.

To ensure our figures were comparative, we assumed that the earnings for each of the individuals or couples we examined were the same in 2008 as they will be in 2017.

There were some good things in last Tuesday’s Budget — such as the €5 weekly increase in the State pension, the boost in the tax credit for the self-employed, the extension of the invalidity pension (which is paid to people who can’t work because of illness or disability) to the self-employed, and the increase in the amounts that can be inherited tax-free.

The help-to-buy scheme for first-time buyers may help those who are finding it impossible to get on to the property ladder. Parents who want to send their children to crèches may find it more affordable to do so under the new childcare subsidies.

However, it is take-home pay — that is, the money left in your pocket after being stung for taxes — which ultimately determines how much of a struggle, or pleasure, our day-to-day lives are. We found that most of us — bar a couple of pensioners — will still be worse off next year than we were in 2008.

“It is clear that we have a long way to go before we have fully clawed back the tax increases imposed during austerity,” says Pat O’Brien, executive director with EY. “Indeed, for most taxpayers, it will take several more years of similar ‘give-away Budgets’ like Tuesday’s just to restore their after-tax earnings to what they were in 2008.”

WEALTHY LANDLORD

€71 a week worse off than 2008

You’re a landlord who snapped up five properties in Dublin before the boom.

You’ve been making €90,000 in rental income a year from those properties since 2008 — you haven’t increased the rent since 2008. You have no other income. You’re married but you have no children and your spouse doesn’t work.

You’ll be €71 a week worse off next year than you were in 2008. This is because of the big jump in the amount of tax you will pay. Your tax bill — including income tax, PRSI and the then health levy — came to €28,416 in 2008, according to Alison McHugh, director of private clients with Deloitte. That tax bill — including income tax, PRSI and the USC — will stand at €32,129 next year. So you’ll take home €57,871 of your rental income next year after paying tax — as opposed to the €61,584 you took home in 2008.

The main reason you are paying more tax than you did in the year of the banking guarantee is the USC. The only tax levy back in 2008 was the health levy — and that levy didn’t hit your income as much as the USC does now.

“Whilst we have seen a small reduction in Universal Social Charge rates over the last three budgets, it is still significantly higher than the 2pc health levy being charged on rental income back in 2008,” says McHugh.

You’ll also pay more PRSI next year than you did in 2008.

On the plus side, under Budget 2017, you’ll be able to write 80pc of the mortgage interest relief on your rented properties off your rental income tax bill — up from the 75pc rate you can currently write off. That extra tax relief is not much of an improvement but Finance Minister Michael Noonan has promised to restore mortgage interest relief for landlords in full by 2021. €4,264 a week worse off than 2008

You’re a well-off man in your early 50s with assets worth €50m. Those assets include about €40m worth of Irish property, €5m worth of Irish shares and €5m worth of other savings and investments. You are also earning a salary of €2m a year as chief executive of a major Irish firm. On top of this, you’re earning about €500,000 in dividends and rental income.

Those earnings haven’t changed since 2008. You’re married and your spouse isn’t working. You have three adult children who are no longer living at home.

At about €1.2m, your take-home pay after tax will be €221,730 lower next year than it was in 2008, according to Lisa McCourt, a senior manager with PwC. That’s about €4,264 less a week. You took home about €1.43m after tax in 2008.

The main reason your take-home pay has dived so much is the USC. In 2008, you lost €62,000 of your earnings to tax levies (that is, the health levy). Next year, you’ll lose €209,189 to tax levies (that is, the USC), according to McCourt.

As you’re a high earner, you’re getting hit by the top 11pc USC rate.

You’ll also pay almost 60 times more PRSI next year than you did in 2008.

“This family’s PRSI bill has increased significantly between 2008 and 2017 for a number of reasons — including the abolition of the PRSI earnings limit [which had previously restricted the amount of earnings which you paid PRSI on], the abolition of the weekly PRSI exemption [which had allowed you to earn a certain amount each week without getting hit for PRSI] and the introduction of a charge to PRSI on unearned income — that is, their investment income,” explains McCourt. Along with the taxes on your take-home pay, as you own €40m of Irish property, you will also have been hit by the introduction of the property tax in mid-2013.

As the property tax bill for a residential property worth €1m or more runs to a few thousand euro a year, your total property tax bill for 2017 could easily be running into the tens of thousands. You would have faced no such bill in 2008.

One of the few things that has gone in your favour tax-wise since 2008 was the cut to the top income tax rate in 2015 — but the enormous USC and PRSI you now face has more than wiped out the benefit of that.

DAIRY FARMER

€20 a week worse off than 2008

As you’re a dairy farmer, you’re not loaded — but you’re in a better boat than less well-off farmers across the country. You’re 40 years old, married and have three young children. You expect your income to come to €60,000 next year — the same as it was in 2008. Your wife has no income of her own — she stays at home to look after the children and to help out around the farm. You own your home and land.

Despite the low-interest loans and other farmer-friendly measures announced in the

Budget, when it comes to take-home pay, you are still worse off than you were in the year of the bank guarantee.

You will take home €45,220 after tax under Budget 2017 — down from €46,284 in 2008, according to Jane Devlin, a senior manager with PricewaterhouseCoopers.

That means you’ll pay about €20 extra a week in taxes next year than you did in 2008.

This is largely down to the USC — which has you paying twice the tax levies paid in 2008. You’re also paying more PRSI.

“The farmer will, however, benefit from Budget 2017’s increase in the home carer’s tax credit and the increase in the tax credit for the self-employed,” says Devlin.

The home carer’s tax credit, which is being increased from €1,000 to €1,100, can be claimed by your wife — and so will bring down your tax bill (as long as you and your wife are jointly assessed for tax).

So too will the tax credit for self-employed individuals (known as the earned income credit), which is being increased from €550 to €950.

“Also, if the farmer uses income averaging to calculate his taxable income, he will benefit from a new measure introduced in the Budget whereby if he is having an exceptionally difficult year, he can step out of income averaging and calculate his tax liability based on the actual income earned for that difficult period,” says Devlin.

(Income averaging, which involves calculating the typical income earned a year over a given period, is often used by those whose income varies from year to year — such as farmers.)

MODEST PENSIONERS

€6 better off a week

You’re a married couple who both retired in 2008. You’re both in your early seventies. You each get a private pension of €10,000 a year. You also both qualify for the full State contributory pension.

Although you’re losing more of your income to tax than you did in 2008, you’re getting more from the State pension — and so you’ll take home slightly more next year than you did in 2008. The State pension was worth €223.30 a week to each of you in 2008. From March 1 of next year, it will be worth €238.30 a week.

So between your private pension and the State pension, you’ll take home €42,852 after tax next year — €303 more than you did in 2008, according to Devlin. So you’re one of the few to be better off under Budget 2017 than you were in 2008 — albeit by a measly €3 each a week.

JOE SOAP

€25 a week worse off

You’re a 30-year-old single male earning €36,600 — which is the average wage. You live at home with your parents and you have no children. Your earnings haven’t changed since 2008. Your take-home pay will come to €28,836 next year — about €1,320 less than it was in 2008, according to Lauren Clabby, associate director with KPMG. So you’re about €25 a week worse off under Budget 2017 than you were in the year of the bank guarantee. This is largely down to the higher PRSI and tax levies which you are being hit with. “Overall taxes remain higher than they were in 2008,” says Clabby.

MILLIONAIRE PROPERTY DEVELOPER

€1,532 a week worse off

You’re a self-employed property developer in your early 50s who earned €1m in 2008.

Although your earnings took a dip during the recession, you have since won a few major contracts and you expect to earn €1m in 2017.

You’re married and you have five children. Your wife has her hands full with the five children and so doesn’t have an income herself. Under Budget 2017, more of your earnings will go to the Taxman than will go into your pocket. You will lose €530,279 of your earnings to tax next year — which means you’ll come home with €469,721, according to Clabby.

In 2008, you took home €549,385 after tax — which meant you didn’t lose more than half of your earnings to tax.

You’ll be paying almost €80,000 more tax next year than you did in the year of the bank guarantee. This is largely due to the impact of higher tax levies and PRSI.

The increase in the tax credit for selfemployed individuals will be of some benefit to you next year — but as your USC bill runs over €100,000, the tax credit will be of limited use.

SQUEEZED MIDDLE WITH STAY-AT-HOME DAD

€121 a week worse off

You’re a married couple in your late 30s with three children — aged 7, 5 and 4. One of you stays at home to look after the children; the other works full-time for a big employer and earns €110,000 a year.

You’ll take home €70,221 after tax next year — €6,315 less than you took home in 2008, according to EY’s O’Brien.

This means you’ll take home €121 a week less in 2017 than in 2008. You’ll be hit for almost three times as much tax levies and more than twice as much PRSI in 2017 than in 2008 — and this is the main reason your takehome pay is down so much.

The childcare subsidies announced in Budget 2017 won’t be much use to you — and so won’t offer the stay-at-home parent any financial incentive to return to work.

As your youngest child is four, you won’t qualify for the universal childcare payment (which is not means-tested and is worth up to €960 a year) for children between the ages of six months and three years. Neither will you qualify for any of the targeted childcare subsidies for children up to the age of 15 (which are means-tested) — because your take-home pay is too high. (A family with three children aged seven, five and four will not qualify for any childcare subsidies if their net income is more than €55,100.)

SQUEEZED MIDDLE, TWO WORKING PARENTS

€78 a week worse off

You’re a married couple in your late 30s with three children — aged 7, 5 and 4.

You both work for a big multinational firm. One of you earns €70,000 as a full-time employee; the other earns €40,000 as a parttime employee.

This combined income of €110,000 is the same amount of money earned by the squeezed middle family we have just examined — where one parent stays at home to look after the children.

However, you’ll take home more of your €110,000 after tax with two parents working — than the married couple with only one parent working outside the home. Your take-home pay will come to €77,639 next year, compared with €70,221 for the family with one earner, according to O’Brien.

You’ll still be worse off to the tune of €4,068 a year (or €78 a week) than you were in 2008, though — because of the impact of the USC and higher PRSI. The new childcare subsidies won’t be any use to you either.

HOUSEHUNTERS

€69 a week worse off

You are an unmarried couple who are living together and paying about €1,400 a month in rent. You are both earning €40,000 each. Soaring rents mean you are more eager than ever to get on to the property ladder. Neither of you owns or has inherited any property.

You will be €69 a week — or €3,577 a year — poorer under Budget 2017 than you were in 2008, according to O’Brien. This is because you’re paying more income tax, tax levies and PRSI than you did in 2008.

However, you might well welcome the Budget’s help-to-buy scheme as it could help you to get your feet onto the property ladder.

“While this couple will still be paying more tax than they did in 2008, the first-time buyers rebate of up to €20,000 [under the help-to-buy scheme] will enable this couple to recoup a lot of the additional tax that they have paid over the last four years,” says O’Brien.

A €50,000 EARNER WITH VARIOUS HATS

Between €13 and €55 a week worse off

Public servants have been hit hard by the public sector pensions levy and it is for this reason that a public servant on €50,000 will take home less of his pay than a PAYE worker or self-employed individual on the same money.

EY examined whether an individual earning €50,000 would be better off under Budget 2017 as a PAYE worker, a public servant or a self-employed individual. The individual is single and has no children. The PAYE worker will take home €36,270 in 2017 — after paying all his taxes, according to O’Brien.

However, the public servant will only take home €34,995 — after paying taxes and the public sector pension levy (a compulsory deduction for public servants). The selfemployed individual will take home €35,570.

The PAYE worker, public servant and selfemployed individual will all take home less of their €50,000 pay packet after tax next year than they did in 2008 — however, it is the selfemployed worker who is the nearest to closing the gap.

One of the main reasons for this is the new tax credit for self-employed individuals. This tax credit, which was introduced for the first time in 2016 — and will be increased in 2017, will allow the self-employed individual to reduce his tax bill by €950 in 2017.

‘We have a long way to go before we fully claw back the taxes imposed during austerity. For most of us , it will take several years of so-called ‘giveaway budgets’

All the same, the self-employed individual will still be €694 (€13 a week) worse off under Budget 2017 than in 2008; while the PAYE worker will be €1,588 (€30 a week) worse off.

The public sector worker will be down €2,864 (after taxes and the pension levy) — or €55 a week, according to EY. The pensions levy, which was introduced in March, 2009, will take more money out of the public servant’s wages next year than either the USC or PRSI.

SINGLE MUM ON SOCIAL WELFARE

€6 a week worse off than 2008

You’re a single mum aged 28 who is not working and who has one child aged 10.

You and your child live in a two-bed apartment in Dublin 1. You are not getting any maintenance payments or other financial support from the father of your child.

Looking at your social welfare payments alone, you will be about €297 a year — or almost €6 a week worse off — under Budget 2017 than you were in 2008.

The total amount of social welfare payments you were entitled to in 2008 came to €14,247 — or €274 a week, according to the INOU. That €14,247 included the one-parent family payment of €222 a week, child benefit of €160 a month for the first three months of 2008 — and €166 a month thereafter, — the fuel allowance, and the back-to-school clothing and footwear allowance.

It does not include rent supplement as you would not have been entitled to it, according to the INOU.

Next year, you’ll be entitled to social welfare payments of €13,951 — or €268 a week, according to the INOU. That includes the jobseeker’s transition payment of €223 a week (you no longer qualify for the one-parent family payment because your child is over the age of 7), child benefit of €140 a month, the fuel allowance, and the back-to-school clothing and footwear allowance. You won’t qualify for rent supplement in Dublin 1 today, according to the INOU.

This is because the market rent for a twobedroom apartment in Dublin 1 today is above the limits set for rent supplement — as was the case in 2008, says the INOU.