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budget 2022
Morning Memo: Who benefits most from the tax changes in Budget 2022?
Inflation and the cost of living are the two spectres that haunt the Government’s plans for the next year.
This is an extract from today’s edition of Morning Memo, TheJournal.ie’s daily business newsletter, which puts the biggest business and economics stories of the day into context for readers. We also include a reading list of some of the more interesting business and economics-tinged stories from around the internet. Find out more and sign up here or at the bottom of the page.
IF BUDGET 2021 WAS one that almost militated against big ideas, Budget 2022 is full of seemingly contradictory ones, it could be argued.
Inflation and the cost of living are the two spectres that haunt the Government’s plans for the next year. With that in mind, a modest increase in the minimum wage and a €1,500 increase in the standard rate tax band are aimed at affording people some breathing room across the income spectrum.
But the benefit of the income tax changes is likely to be felt mostly by those earning slightly above the €35,300 standard rate at the moment. They will see their take-home pay rise by roughly €420. Lower-income workers — those who are least able to ”absorb annual consumer price increases“, as Marian Ryan of Taxback.com put it — are set for an annual earnings boost of just €115. This is mostly from €50 increases in the PAYE and Personal Tax Credits and the raising of the second USC band by €608.
A €10 per month increase in the income threshold for the Working Family Payment, while welcome, appears to be less than the projected rate of inflation.
Meanwhile, justifiable though it is from an environmental standpoint, the €7.50 increase to the Carbon Tax seems likely to contribute to consumer price inflation. Bear in mind that sharply inclining transport prices — mostly as a result of higher petrol and diesel costs — were the single biggest upward contributor to the Consumer Price Index in the year to the end of August, according to the Central Statistics Office.
Undoubtedly, once inflationary pressures subside somewhat next year as economists expect, Budget 2022 will be judged on how it delivers on the headline issues like housing. A record figure of €4 billion has been set aside to fund the first year of the government’s ‘Housing for All’ strategy, a 21% increase in the capital budget from 2021. At the same time, the 7% Vacant Site Levy — aimed at disincentivising land hoarding — is to be replaced by a 3% ‘zoned land tax’, which will apply to a larger amount of sites. However, it won’t come into play for two or three years, a decision that has been described variously as “strange” and “worse than useless” by some journalists and opposition politicians.
Expect more blowback over the coming days as the details of Budget 2022 are fully digested.
