Payroll levies still leave well-paid and low earners out of pocket
MANY well-paid workers are worse off under Budget 2019 than they were 10 years ago. This is largely due to the impact of the Universal Social Charge (USC) on their earnings.
For example, a single PAYE worker earning €100,000 will be €52 a week worse off in 2019 than he or she was in 2009, according to figures from PwC. This worker’s take-home pay will be €61,489 next year — down from €64,218 in 2009. “This reduction is essentially due to the introduction of the USC at a rate of 8pc for all earnings over €70,044 combined with the removal of the cap on PRSI for earnings over €52,000,” said Ciara O’Connor, senior tax manager with PwC.
“There has also been a reduction in the personal and PAYE tax credits in the period from €3,660 to €3,300.” (Tax credits allow you earn a certain amount of income before paying tax — so any cut in tax credits is money out of your pocket.)
Budget 2019 has done little to improve the attractiveness of Ireland as a location for highskilled workers, according to O’Connor.
“Individuals earning over €100,000 pay a very sizable portion of their income in tax, the USC and PRSI,” said O’Connor. “We are now experiencing almost full employment and for Ireland to remain competitive and to attract the right talent from overseas, we need to consider how our income tax rates for highly-skilled workers compare to competitor jurisdictions.”
A family earning €90,000 will be almost €9 a week worse off under Budget 2019 than they were under Budget 2009 — assuming only one spouse works and there are two children in the family, according to figures from EY. The take-home pay of this family, including child-benefit payments, will come to €64,999 next year — compared to €65,447 in 2009.
The extent to which tax rates can climb has soared over the last 10 years. “For higher-paid people in 2008, the highest tax rate was 41pc,” said Pat O’Brien, partner with EY. “It has since risen to 52pc for PAYE people and 55pc for self-employed earning over €100,000.”
Low earners haven’t gained much either. As such workers will often earn much less than €34,550, none of their earnings are liable to the higher tax rate. Budget 2019’s increase in the amount of money which can be earned before workers get hit for the higher rate of income tax will therefore have no impact on such workers, according to Robert Dowley, partner with KPMG.
Even the Budget’s cut in the USC will be of limited benefit to those on low incomes. “A worker earning €30,000 will see their USC being reduced by €39 over the course of 2019, but when inflation is taken into account, they are likely to be less well off in 2019 relative to 2018,” said Dowley.
Retired individuals on modest incomes could also lose out — as an indirect result of the upcoming €5 weekly increase in the State pension.
“Those aged 65 or more are exempt from income tax where their annual income is no more than €18,000 in the case of a single individual or €36,000 in the case of a couple,” said Dowley. “For an elderly individual with relatively modest rental income or a pension from their former employment, increases to their old-age pension can have the effect of disproportionately increasing the level of income tax payable in certain instances.”