'Universal tax' to hit middle income homes
MIDDLE-CLASS families are about to be hammered again in this year’s Budget.
A Government-commissioned report today paved the way for working families to be weighed down with new taxes.
The report wants a so-called universal tax of 7.5pc which would mean middle and lower income earners handing over a lot more of their pay.
The new tax would reduce the number of social levies paid by higher income workers, but it would pave the way for them to pay a new higher tax rate.
The “universal social charge” would see the existing PRSI contribution, health levy and income levy combined into one single charge.
The 7.5pc across-the-board charge could see workers lose some of their automatic
PRSI privileges such as pension benefits and dental, optical and aural treatments.
High earners could benefit from the charge with top rate taxpayers seeing their marginal rate cut from 52pc to 48.5pc.
This could see a penal rate of tax on top earners in the Budget.
One of the authors of the ESRI report admitted today that entitlement to health benefits was now a "real mystery".
Most other income groups would lose out unless Finance Minister Brian Lenihan devises a compensation mechanism, such as raising the higher rate of income tax.
Labour's finance spokesperson, Joan Burton, called on the Dept of Finance to immediately clarify its intentions.
She said entitlements, such as the old age contributory pension and widowers' pension, were "cornerstones" of society.
In his last Budget, Mr Lenihan signalled his intention to create the universal social charge for 2011 but the details are now raising concerns.
One of the report's authors, Brian Nolan of UCD, said: "This single charge would run alongside the income tax system on a low rate for a wide population and, in the words of the Minister, allow people to make a contribution towards the cost of social services."
But Mr Nolan accepted that there is serious confusion around how the new charge would operate.
"It was initially called a universal social contribution which makes it sound like a PRSI contribution. The key feature of PRSI is that you pay a contribution and you gain an entitlement in return," said Mr Nolan.
"So the fact that the labelling has been changed to call it a charge suggests that no such entitlement would be accumulated ... which leaves open the question as to how you would then operate the social insurance system."
Ms Burton has called on the Minister to immediately "explain his thinking on this".
"The contributory principle for the old age and widowers' pension, to me, that's a fundamental part of social insurance," she told the Herald. "I'd be just a bit surprised if the Minister sought to change that."
Opposition parties will also be seeking details of how the Government would balance the payment so that low and middle-income earners aren't hardest hit. Under the basic plan, the wealthiest in society will gain because the new charge will be applied in the same way as the existing income levy.
The levy is spread over three rates -- 2pc, 4pc and 6pc -- based on income but the social charge would be a flat rate.
"The idea is that it is chargeable on gross income, there's no element of your tax excluded from the charge," explained Mr Nolan.
The expectation is that Mr Lenihan would then raise the higher income tax rate in order to appease ordinary workers and bolster exchequer returns.