It has been a fortnight since Brian Lenihan delivered his 2010 Budget which was set to be one of the harshest budgets in many years.
While the sting was taken out of the budget with many of the provisions being well flagged in advance of the speech, the impact will be far reaching with many families experiencing a loss of income once the amendments come into effect.
As was signalled by the government, the thrust of this year’s budget would be a reduction in government expenditure in order to reduce the budget deficit.
This is what in fact transpired and as such there were very few taxation amendments with tax rates and PRSI rates and Standard Rate Cut Off points remaining unchanged. There were, however, large cuts in public sector pay, social welfare payments with budgets across governmental departments being slashed.
For the benefit of readers, some of the more important amendments are set out hereunder by local accountants O’Donovan Caulfield Lavin, of Mount Kennett House.
Social Welfare Cuts
Most recipients of social welfare payments under the age of 66 face a cut of 4.1% in payments. The government has indicated that the cost of living has fallen about 6.5% over the past 12 months and therefore, in their view, social welfare recipients net disposable income will not decrease substantially notwithstanding this cut.
The government has decided not to amend the state pensions for people over 66 years of age and they will continue to receive free travel, free TV licence and free electricity or gas allowance.
Jobseeker’s Allowance paid to new claimants aged 20 and 21 is to be reduced from €204.30 per week to €100 per week from January, 2010. Payments to new claimants aged between 22 and 24 years of age is to be reduced to €150 per week. The full rate will, however, be paid to those under 25 years of age if they participate in an approved training or education course and claimants with dependent children will not be affected.
The personal rate of jobseeker’s allowance will be reduced to €150 per week where job offers or activation offers have been refused.
PRSI Claims for Optical Benefit & Dental Benefit
Optical & Dental Benefit will be restricted next year to free examinations only. Other payments towards the cost of dental scaling, fillings, extractions and dentures will cease as will the cost of glasses, replacement lenses and contact lenses.
Child Allowances
Child Benefit is to be reduced by €16 per month. The families dependent on social welfare or in receipt of family income supplement, will be compensated by an increased payment for a qualified child.
Carbon Tax
A carbon tax at a rate of €15 per tonne is being introduced on fossil fuels. It applied to petrol and auto diesel with effect from midnight December 9, 2009, and will come into effect on May 1, 2010, to home heating oil and gas. The application of this tax for coal and commercial peat is subject to a commencement order.
Value Added Tax
There is a welcome reduction in the standard rate of VAT from 21.5% to 21% with effect from January 1, 2010.
Decrease in Excise Duties
Excise Duty is also being reduced on beer and cider by €0.12 per pint and spirits by €0.14 per half glass and on wine per €0.60 per 75cl bottle.
Vehicle Scrappage Scheme
While there were a number of changes in relation to VRT the main change relates to a scrappage scheme being introduced in respect of the scrappage of cars which will allow VRT relief of up to €1,500 where a car of 10 years or older is scrapped and is replaced with a certain new car within the emission bands of A or B.
Mortgage Interest Relief
Qualifying loans taken out before July 1, 2011, will continue to receive mortgage interest relief for seven years, subject to the limits. Transitional measures will be provided for qualifying loans taken out between July 1, 2011, and the end of 2013. The Minister has indicated that he will abolish the relief entirely at the end of 2017.
Corporation Tax
There is an extension of the existing scheme providing for a three year exemption for Corporation Tax on income and gains of new start up companies to include companies who commenced trading in 2010. In general, this relief is available where the total amount of Corporation Tax payable by the company for an accounting period does not exceed €40,000. There is marginal relief between €40,000 – €60,000.
Drug Payment Scheme
The threshold for the Drug Payment scheme is being increased from €100 per month to €120 per month. This effectively means that participants will now pay a maximum of €120 per month in respect of drugs and medicines with the balance being covered by the state.
Prescription Charge
A €0.50 charge per item subject to a monthly ceiling of €10 per family is being introduced for medical card holders.
Reduction in Public Service Salaries
Pubic sector salaries will be reduced as follows:
5% of the first €30,000 of salary
7.5% on the next €40,000 of salary
10% on the next €55,000 of salary.
As well as this there will be new pension arrangements for new entrants to the public service from 2010. Public service pension age is being increased to 66 years and the maximum retirement age is 70 years.
New entrants from 2010 who are retiring will in future have their pensions based on “career average” earnings rather than the system which currently applies which is based on the final year’s salary.
National Solidarity Bond
The government is proposing to establish a new National Solidarity Bond early in the New Year to assist financing of the Capital Investment Programme. The bond will be operated by An Post. Investors can choose to invest for 5, 7 or 10 years with interest being paid annually and investors will be entitled to a final redemption bonus on maturity as an incentive to leave their funds invested. It will be possible to invest in the fund by means of a lump sum or occasional payments. Full details will be announced in the New Year.
High Earners
The specified relief measures are to be amended for 2010 and subsequent years in order to achieve a minimum effective rate of income tax of 30% for high earners (incomes over €125,000) who are utilising various taxation incentives.
Non Residential Individuals
Non resident and Irish Domiciled individuals will pay a €200,000 tax charge in any year where their income exceeds €1m and their Irish located capital exceeds €5m
Credit Review System on Business Lending
Small & medium size enterprises, farm enterprises and sole traders are being given a right to appeal where an application for credit is refused by a participating bank (i.e. a bank that is covered under the current guarantee scheme), after the banks own internal process has been finalised. Where it is recommended that credit should be granted the participating institution which refused credit must comply or provide a written explanation. The government have appointed an individual to oversee the establishment of this credit review system and will hopefully be a welcome addition in allowing small businesses to raise credit from banks which up to now has been quite difficult.
What’s On The Way!
The minister has indicated that it is his intention to merge the Income Levy, PRSI and the Health Levy into a new social Levy.
A property tax is to be developed and to facilitate the operation of this tax a register of land ownership and valuation is to be introduced. There will be considerable groundwork required before this will be introduced.
The minister announced that work is underway to install water meters in every house in Ireland and charges will be levied on any consumption above a free threshold.
Summary
The Minister has advised that this would be the most severe of all the Budgets and it is the Governments view that taking remedial action now, although painful, will lead the way to recovery of the economy. The cuts however, particularly for Social Welfare recipients and Public Sector employees, will no doubt be a difficult pill to swallow and there is no doubt that there will be a tough few years ahead.
