herald

Friday 18 August 2017

The big winners and losers of Budget 2015

It's official: austerity is over. After seven years and almost €30bn of tax increases and public spending cuts Michael Noonan and Brendan Howlin unveiled a mildly expansionary budget yesterday. Between the jigs and the reels Budget 2015 will inject approximately €500m into the economy next year.

While the government parties are not unnaturally spinning it as a giveaway budget the reality is somewhat more nuanced. There are many apparent winners but there are also some clear losers and even those who at first glance were on the right side of Budget 2015 won't end up doing quite as well as they might have thought.

The Winners:

With a general election due to be held in no more than 18 months, the budget was aimed squarely at the so-called "squeezed middle", which, not coincidentally, is where most of the votes are concentrated.

The top rate of income tax was cut by 1pc to 41pc and the standard rate band was raised by €1,000 to €33,800 for a single person (€2,000 for a two-income couple). For those on below-average incomes the 2pc USC rate was cut to 1.5pc and the 4pc rate to 3.5pc, while the annual income threshold at which USC must be paid has been raised to just over €12,000.

Impact

The combined impact of these measures will leave someone on the minimum wage €178 per year better off and a couple with a combined income of €59,300, €598 better off.

Just for good measure, child benefit has been raised by €5 per month. Previous attempts to cut child benefit - which costs the exchequer almost €2bn a year, and is payable to all families regardless of income - have proved massively unpopular.

The government also bowed to pressure to scrap the hated pension levy, which confiscated 0.75pc of private sector workers' retirement savings every year, and to "do something" about water charges by introducing a 20pc tax credit on water bills of up to €500 a year, basically a 20pc reduction in water charges for most people.

The losers:

But of course, even with a €500m injection into the economy, Michael Noonan and Brendan Howlin have to raise taxes elsewhere in order to pay for this largesse.

The most obvious victims have been smokers with the price of 20 cigarettes being jacked up by 40 cents. Whether raising the price of 20 fags to a tenner brings in much revenue or merely increases the proportion of the tobacco market controlled by smugglers - who already have close to a 30pc share - remains to be seen.

However, excise duties on the other "old reliables", booze and motor fuel, were left unchanged. Furious lobbying by the hospitality sector also paid off with the special 9pc VAT rate surviving for at least another year.

Those on above-average incomes, particularly the self-employed, also got hammered. For employees earning more than €70,000 a new 8pc USC rate is being introduced while self-employed people earning more than €100,000 a year will be hit with an 11pc USC rate.

While increasing the USC rate paid by high-earners may play well with the Labour Party, it surely makes a nonsense of the government's professed aim of cutting taxes. Expect to see more incoherence of this type as polling day draws closer.

secret

However, those on large incomes will surely be able to look after themselves. Budget 2015's dirty little secret is that even most of the apparent beneficiaries will only benefit marginally, if at all, when previously-announced impositions such as water charges and the property taxes are taken into account.

From January 1, households will have to find at least another €238 per year (€190.40 after the tax relief is taken into account) to pay their annual water bills.

The moral of the story is surely what Michael Noonan and Brendan Howlin give us with one hand they have already taken back with the other.

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