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Budget 2011 brings over 300,000 back into the tax net

What will it mean for you? Here’s our guide to all the hidden nasties in today’s Budget.

A SWEEPING SET of changes to the tax system which will bring more than 300,000 people back into the tax net has been announced in the Budget.

The impact of the most punitive – and arguably one of the least imaginative – Budgets in the country’s history will be most keenly felt by those on low incomes, those with children, and those dependent on social welfare.

Child benefit is being reduced by €10 for the first and second child, while the reduction on the third child will be €20. Social welfare payments are to be cut across the board by an average of around €8 per week, while jobseekers allowance was reduced by €6 per week.

The new universal social charge – which rolls the health and income levies into one – will be applicable on income over €4,000 – a massive drop on the €26,000 threshold for the existing charges.

At the other end of the spectrum, high earners will also be hit by the abolition of the €75,036 PRSI ceiling for employees, and by changes to tax on pension contributions. DIRT tax is also going up by 2 per cent.

The value of tax bands and rates have been cut by 10 per cent, bringing more people into the tax net for the first time – and meaning more will now pay tax at the higher rate.

But the main effect will be to address the anomaly whereby, until now, 45 per cent of the workforce was outside the tax net – no income tax was paid on incomes of €18,300 or less.

By cutting tax credits and bands by 10 per cent, this Budget aims to bring a total of 60 per cent of the country’s workforce into the tax net – which means that over 300,000 people will be paying tax for the first time in 2011.

Personal tax credits were cut by 10 per cent across the board, while tax bands were widened across the board, meaning more people will now pay tax at the higher rate.

  • Individuals will now pay an extra €180 in tax, after tax credits were reduced from €1,830, to €1,650.
  • Married couples will pay €330 more, after their tax credits were cut from €3,660 to €3,300.
  • Single people will now pay tax at the higher rate on income over €32,800 – down from €36,400.
  • Married people in a single income family will pay tax at the higher rate on income over €41,800 – down from €45,400.
  • Married people in double income families will now start paying tax at the higher rate on income over €65,600, after the band was cut from €72,800.
  • The cut-off point for single parents is €36,800 – down from €40,400.

The Minister also announced that age credits and exemption – which apply to people over 65 who earn less than €20,000 – would be reduced by €2,000 to €18,000, with a view to abolishing them fully over four years.

The artist’s taxation emption will now be subject to a ceiling of €40,000.

The PRSI rate for self-employed people will be increased from 3 per cent to 4 per cent. Meanwhile, employee contributions to pension schemes will now be subject to employee PRSI and the new universal social charge.

In addition, the PRSI exemption for employers on contributions to employees’ pensions will be reduced by 50 per cent from 1 January.

The process of streamlining the taxation system is being stepped up with the abolition of the health and income levies, which will be replaced by a new universal social charge. The charge – which the government says is being introduced on a revenue-neutral basis – will apply at the following income thresholds, down from the €26,000 threshold for the existing charges:

  • 0% on income up to €4,004
  • 2% on income up to €10,036
  • 4% on income between €10,037 and €16,016
  • 7% on income greater than €16,016

The Budget will also have a significant impact on those on social welfare:

  • Social welfare payments are to be cut across the board by an average of around €8 per week.
  • Maternity and adoptive benefits will also be cut by €8 per week.
  • Jobseekers allowance is to be reduced by €6 per week.
  • The supplementary welfare allowance is being cut by €10 per week.
  • People on social welfare will be expected to contribute an additional €2 per week towards their rent.
  • Child benefit is being cut by €10 per month for the first child, and €20 for the third child, while the rate for each subsequent child will be cut by €10. The new rates will be at 2006 levels – €140 per month (first and second child), €167 (third child), €177 (fourth and subsequent children).
  • Some of the tax advantages for pensioners were eliminated, although no change was made to the State pension.

Some additional charges are being introduced for those in education:

  • Parents of primary school children will have to pay €50 towards the cost of school transport.
  • A flat rate higher education contribution of €2,000 for third level students – but only one child in each family will have to pay it at that rate at a time.
  • Student grants will be reduced by 4 per cent.
  • There will be an €8 reduction in Fás training allowances.

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