BILL TYSON
Don’t be hoodwinked by phantom tax cuts and fake increases. The only way to really gain is by claiming back every cent
Are we savvy enough to understand when the wool is pulled over our eyes? Or will we be taken in by politicians’ tricks, rejoicing at token tax cuts and ‘increases’ that are given with one hand – but then retrieved surreptitiously through stealthy increases with the other.
Alas, year after year , they seem to get away with doing exactly that. The biggest stealth tax is inflation. Many countries force politicians to be more honest in their budget ‘giveaways’ by index-linking tax and welfare to automatically account for inflation.
This removes the temptation to selectively reduce tax in some areas, while leaving most credits unchanged as their real value is eroded, thereby enabling the State to claw back the gains it gives away elsewhere.
We don’t index link our tax and welfare systems and so the politicians have a field day every year.
They announce welfare increases that are nowhere near as generous as they seem – while payments that are not changed are really cut as inflation eats into their value.
Some pensioners and welfare recipients made small gains in this Budget but income tax payers are actually worse off. Yet that doesn’t stop politicians from creating undeserved fanfare over phantom tax cuts and payment increases.
The Economic and Social Research Institute and the Revenue Commissioners have repeatedly blown the whistle on the sneaky politicos over this issue.
As far back as July, the Revenue forewarned us of what tricks to expect.
Its ‘ready reckoner’ for the Budget points out that taxpayers will lose €20m next year – not gain €335m as Finance Minister Paschal Donohoe claims. This is because the cost to us of not indexing bands for inflation will be €355m.
The ESRI goes further and says tax and welfare should be linked to wage increases. If not we pay more tax than we should. Linking payments to wages is debatable. But welfare should at least go up in line with inflation if it is to retain its value.
And while many payments rose by a fiver, those that didn’t, such as child benefit, were effectively cut.
Even that famous ‘fiver’ isn’t all it’s cracked out to be.
A full contributory pension of €238.30 should rise by €2.38 to account for 1% inflation next year.
So that leaves €2.62 out of your ‘fiver’ in ‘real money’.
But the rise won’t be paid until March 26. So even discounting inflation it’s not really a fiver increase over the whole of next year is it? Over the full year, the fiver averages out at around €3.75 a week.
When you also factor in inflation, the real rise is just €1.13 a week over the year as a whole.
Taoiseach Leo Varadkar reaped kudos as social protection minister for saying he was going to sort out the shoddy treatment of the self employed. So what has he done? A spokesman for the Taoiseach pointed to some optical, dental and hearing treatments extended to people who work for themselves in March, which will be rolled out further this month.
‘Later this year self-employed people [will get] access to the invalidity pension without a means test.
‘For the first time they will have access to the safety-net of State income supports if they become permanently unable to work through illness or disability,’ he said.
But overall, the Budget has been a disappointment to the self-employed sector. Unemployment and sickness benefits – the main ones – have not been extended to them.
This is because a major review of the social insurance fund is under way and will be published later this month, according to a spokeswoman for the Department of Social Protection.
‘Any further extension of social insurance benefits to the self-employed will be considered following publication of the review,’ she said.
The only ‘goodie’ they got in the Budget was a fairly token €200 increase in their earned income tax credit to €1,150. This is still way below the €1,650 equivalent for PAYE workers.
Now that the gripes are out of the way, what’s the good news?
The Home Carer tax credit went up by €100 to €1,200. Credits are deducted directly from your tax bill, so that’s €1,200 straight into your pocket if you pay that much tax. Yet 67% of families due this credit failed to claim it last year!
Also watch out for mortgage interest relief, which is to be substantially cut, for those that still have it, over the next three years.
This is based on your interest payments.
Now that it’s being done away with, any incentive to keep interest payments intact will be gone too.
Therefore, it now makes even more sense to pay off your mortgage early, if you can afford it, and make a return of up to 4.5%, depending on your lender.
If you’re too pressed for cash to do this, think about availing of the rent-a-room scheme.
This is even more attractive now that the Revenue is clamping down on Airbnb lettings.
There are no nasty income or capital gains tax implications and you can earn up to €14,000 a year tax free.
There was some good news in the Budget for landlords, who can now get relief on some preletting expenses.
The expenses must be incurred within the 12 month period before the home is let. A cap of €5,000 per property will apply and the relief will be subject to clawback if the property is withdrawn from the market within four years.
Another gain from Budget 2018 is the exemption from benefit-in-kind tax of electric cars. And there is new share option tax-break scheme for employees of unquoted small and medium enterprises – the Key Employee Engagement Programme (KEEP). It exempts from tax any gain realised from January 1, 2018, to December 31, 2023, subject to certain conditions.
Overall, though, this Budget was nothing to get excited about.
Taxpayers should ignore the crumbs of a ‘boring Budget’ and make some money for themselves, said accounting website taxback.com ‘Budget 2018 might be somewhat of a damp squib but there are tax reliefs and rebates still available – you just need to take them!’ said Barry Flanagan, senior tax manager.
He urges us to go ‘back to basics’ and claim every cent we’re entitled to.
The main things to look out for are medical expenses, tuition fees and flat-rate expenses that vary according to your job.
A list of allowances for every profession can be found on revenue.ie. Good hunting!