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An expert’s view on Lenihan’s efforts to make savings for the State |
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Written by Staff Reporter
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Wednesday, 16 December 2009 |
Minister for Finance Brian Lenihan’s goal was to make savings in State revenues of €4bn. As widely predicted, the bulk of this will come from spending cuts rather than extra taxation. John O’Flynn, Tax Partner, Deloitte, outlines the main provisions of Budget 2010
Individuals
REGARDING income tax, the Minister expressed his intention to reform the tax system in 2011, with a new universal social contribution to replace employee PRSI, the health levy and the income levy. This will be paid by everyone at a low rate, while income tax will apply on a progressive basis to those with higher incomes.
The Minister also announced further restrictions on the use of most tax reliefs, which will now provide an effective rate of 30% for those claiming maximum relief.
Social Welfare
SOCIAL welfare was one of the Budget’s most contentious issues and the Minister has announced the following:
• For new applicants, the rate of Job-seekers Allowance and Supplementary Welfare Allowance for those between 20 and 21 years of age who have no dependent children, is being reduced to €100 per week and for those between 22 and 24 to €150 per week. The rate will be reduced to €150 per week where job offers have been refused.
• The lower and higher rate of Child Benefit will be reduced by €16 per month to €150 and €187 per month respectively. The Qualified Child Allowance, received by welfare dependent families, has been increased by €3.80 per week.
• Mortgage interest relief will be extended to 2017 where it was due to expire in 2010, and those taken out qualifying loans before July 2011 will also qualify for this. This measure is designed to compensate those home owners who are now in negative equity.
• One group that may be relieved following the Budget will be pensioners – old age pensions have not been touched.
Public Sector Pay
ANOTHER contentious issue in the lead up to the Budget was that of public sector pay – the Minister is looking to achieve a saving of €1.3bn in pay cuts. These cuts will be 5% on the first €30,000 of income, a reduction of 7.5% on the next €40,000 and a reduction of 10% on the next €55,000.
Those earning higher incomes in the public sector will face a reduction of 8% on salaries of €125,000 to €165,000, 12% for those earning between €165,000 to €200,000; and 15% for those earning €200,000 or more.
Government Ministers will be hit with a pay cut of 15%, and the Taoiseach’s salary will be reduced by 20%.
With regard to further savings, the Minister outlined his intention to save €400m in the health area where various measures, including a prescription charge of 50% per item under the medical card scheme, are being introduced. Further savings will be sought across a number of government departments.
Taxation Issues
THE Minister announced details of the carbon tax, which he hopes will raise approximately €500m. This will be equivalent to €15 per tonne.
The Budget also introduces measures to reduce excise duty on alcohol products. The reductions will be 12 cent per pint of beer and cider; 14 cent per half glass of spirits; and 60 cent per standard bottle of wine.
Business and Employment
THE motor trade will welcome the introduction of the car scrappage scheme – people who trade in a car that is over ten years old will be offered €1,500 off the vehicle registration tax, provided that they are purchasing an environmentally friendly car.
On the jobs front, the Minister announced €136m in funding to provide an additional 26,000 individuals with training places and supports.
The Minister reiterated his commitment to the 12.5% corporation tax rate, which is crucial to encouraging inward investment. The Minister has identified an opportunity for Ireland to become the European Hub for the international funds industry and is proposing to bring changes in the Finance Bill, which will make Ireland more attractive in this area.
Furthermore, he has indicated that he may introduce some of the recommendations of the Innovation Taskforce in the areas of incentives for Research & Development and Intellectual Property in the Finance Bill.
This is most welcome as these are areas on which we need to focus to kick-start the economy.
In summary, while the tax measures announced were relatively mild, the Minister has indicated that radical changes are on the horizon.
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