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Remember those tax cuts most people scored in the Budget? Here's how much they cost

And how tweaking those changes would have shifted the Budget picture.

Image: Leon Farrell/Photocall Ireland

AFTER YEARS OF rises during the austerity years, the news that the government was finally cutting income taxes in this year’s Budget was a welcome announcement for most.

Finance Minister Michael Noonan said “a fair, efficient and competitive income tax system” was essential for the economy and jobs as he launched into the changes.

But exactly how much money will all that tweaking of tax brackets and rate bands actually cost the exchequer, and by extension Irish taxpayers? First, here’s a quick recap of what was new in Budget 2015:

  • Top income tax bracket cut from 41% to 40%
  • Threshold for the top tax band raised €1,000 to €33,800 for individuals and €42,800 for couples
  • Upper threshold for lowest USC bracket lifted to €12,012 and the tax rate cut from 2% to 1.5%
  • Rate for the next USC bracket cut from 4% to 3.5%
  • An 8% USC band to kick in on income above €70,044 for the first time
  • An 11% USC rate for the self-employed earning above €100,000

Noonan also lifted the income threshold above which workers were liable for USC to €12,012, a move he said would take 80,000 low-earners out of that system altogether.

All workers pay less tax, especially high earners

For workers, that all boiled down to less tax across the board – although high earners, who pay the most tax, were the biggest winners.

Sifting through the Budget papers, we learned the total effect of the tax changes was expected to cost the government €642 million over a full year – with about two-thirds of that amount benefiting people earning over €33,800.

Since the average Irish earnings stood at €35,830 last year, a lot of workers would fall into that category.

Top rate cut the big cost

But in a recent answer to a parliamentary question from Sinn Féin finance spokesman Pearse Doherty, Noonan revealed if he had left the top tax rate at 41% in place and only lifted the threshold where it started it would only have cost €180 million – instead of €405 million.

Sinn Fein - Sinn Fein launch Alternati Sinn Féin finance spokesman Pearse Doherty Source: Sam Boal/Photocall Ireland

That would mean the government would have €225 million more at its disposal if it hadn’t shaved 1% off the tax bill for those with earnings in the highest bracket.

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Cutting the lower USC rates and tweaking the thresholds was forecast to cost the government €325 million over a full year – although a small chunk of this was returned by hitting high earners with their new rates.

Some €71 million was expected to flow back into the exchequer’s coffers from its extra USC levy on those earning over €70,044.

Hitting the self-employed on big salaries with an 11% rate for income over €100,000 would yield €42 million over a whole year.

TheJournal.ie tried to find out from Doherty what he wanted with all these figures, but he didn’t return our calls – so that part is still a mystery.

Since launching its Budget, the government has added the carrot of a €100 “water conservation grant” in an attempt to stem the political bleeding over its unpopular water charges – a move which will cost the exchequer around €130 million more.

READ: Where does all your tax money go >

READ: ‘Uninspiring’ budget continues discrimination against self-starters >

About the author:

Peter Bodkin  / Editor, Fora

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