The announcement we have all be waiting for has finally arrived; Brian Lenihan has unveiled the dreaded 2011 budget. This has been the most feared, predicted and leaked budget ever and yesterday the minister turned those fears into stark reality. As expected, the announcement was one of the harshest we have been exposed to in the history of the State. In his speech, the minister put heavy emphasis on the importance of economic recovery and growth. He said that this cannot be achieved by simply increasing taxes and that it was inevitable that public spending must also be cut. Mr. Lenihan also stated that economic growth will be achieved by stimulating consumer spending and job creation. So do we think that Budget 2011 is fair and, more importantly, how much will it cost you?
All taxpayers are facing a reduction in their take-home pay with a reduction in the tax credits of 10% and the narrowing of the standard rate band by 10%. Typically, a single person earning €45,000 will see a net loss of €885 in the year 2011, a single mother earning €21,000 with one child will see a decrease of €229 and a married couple with one person earning €50,000 with two children will suffer a loss of approximately €1,355. These are significant losses that will affect taxpayers’ pockets and will hurt families that are already under financial strain.
The much talked about Universal Social Charge was announced yesterday by the Minister. This means that the health contribution and income levy have been abolished and this new universal rate will apply. A taxpayer will start paying this contribution on income as low as €4,004 at 2% up to €10,036, 4% on the next €5,979 and 7% on income in excess of €16,016. This means that more low earners will be targeted.
Social welfare payments have taken a hit of 4%, leaving those on unemployment benefit with €8 less each week which for families who have been out of work for a long time may have an impact. In addition, child benefit has been decreased by €10 for the first child, €10 for the second child and €20 for the third child. Families with two children will therefore be less well off to the tune of €240 in 2011. Some believe that this reduction will push families that are already to the pin of their collar into poverty. In this regard, some believe that Budget 2011 is directed at those who are least capable of bearing the burden.
The other main points of the budget were as follows:
- Increase in petrol by 4c and diesel by 2c.
- DIRT charged on ordinary savings accounts is to be hiked up to 27% and on other long-term investment policies up to 30%.
- Stamp duty thresholds have been abolished and a flat rate of 1% now applies to all residential properties under €1,000,000 and 2% in excess of this, seeing the abolition of first-time buyers’ relief.
- All property-based incentive schemes are to be abolished by 2014.
- There will be an abolition of many reliefs from January 2011 including trade union subscriptions and the patent royalty exemption with the rent credit to be phased out over the next 8 years.
- The PRSI ceiling of €75,036 has been abolished.
- Tax-free retirement lump sums are being reduced to €200,000 with any amount in excess of that being subject to tax at 20%.
- The maximum tax-relievable contributions for pension schemes will be reduced from €150,000 per annum to €115,000 per annum.
The points above make for scary reading, we can, however, take a few positives from the budget, medical expense relief and relief on tuition fees has not been reduced leaving taxpayers with an opportunity to claim some cash back in the hard times that we face. Also, the air travel levy has been reduced from €10 to just €3, which is a welcome reduction.
The bottom line is that although no one escapes, Budget 2011 is going to affect everyone, and the pain is spread, although some believe, not equally.