Budget 2019 didn’t put much money back into our pockets. Much of the focus of Finance Minister Pascal Donohue last Tuesday was on housing and health – with little left in the pot for anyone else. Many of us will only be better off to the tune of about €5 or €6 a week next year as a result – and some of us won’t be any better off at all. Here are some areas where we’re still losing out financially and which the Budget could have tackled better.
SQUEEZED MIDDLE
The €750 increase in the amount which people can earn before getting hit for the higher rate of income tax has not addressed the issue of high income tax rates kicking in too early “in any substantive way”, according to Pat O’Brien, tax director with Ernst & Young (EY). Budget 2019 increased the amount that a single person can earn before paying the higher rate of tax from €34,550 to €35,300 – and from €43,550 to €44,300 for married couples where only one spouse is working.
“The biggest issue for those on median incomes remains the rapid progression to the 40pc top income tax rate,” said O’Brien. “The proposed increase of €750 to €35,300 does little to address this. By comparison, a single individual in Britain would have to earn more than £46,350 (€52,845) before paying the higher tax rate when personal allowances are taken into account. Working people will still reach the highest income tax rate on relatively modest levels of income.”
Average Irish earnings stand at about €38,700, according to the latest official figures – so people on an average wage will still get hit for the higher rate of income tax next year, despite Budget 2019.
KIDS’ INHERITANCE
Many children will still get stung for inheritance tax bills of tens of thousands of euro or more over the next year because the only change introduced by Budget 2019 in this regard was a token one.
Last Tuesday’s Budget increased the value of gifts or inheritances which children can get tax-free from their parents over their lifetime by €10,000 – to €320,000. “This exemption could have been increased more without much damage to the State finances,” said Michael Gaffney, a tax expert with KPMG. “I think increases in house prices, combined with the passing of the baby boomer generation, means the yield from inheritance tax will be higher than expected.”
In early 2009, a child could inherit up to €542,544 from his parents over his lifetime – and the rate of inheritance tax charged back then was 22pc. On top of the dramatic reduction in the amount which can be inherited by children tax-free since then, the rate of inheritance tax charged today is 33pc.
“In early 2009, a child inheriting a family home valued at €500,000 would pay no inheritance tax – compared with an inheritance tax liability of just under €60,000 today,” said Alison McHugh, director of private clients with Deloitte. “The Government needs to make a bolder move to increase the inheritance tax threshold so they are brought more in line with where they were ten years ago. With the average asking price for a Dublin home being about €375,000, most transfers of family homes to a single child will be within the inheritance tax net.”
LOST TAX BREAKS
A raft of tax breaks, such as the reliefs on trade union subscriptions, bin charges and medical expenses, have been either abolished or curtailed since the first austerity budget. These reliefs were worth hundreds, if not thousands, of euro to taxpayers.
Given that employment is at record highs, and that Ireland is forecast to record the highest economic growth in Europe this year, surely Minister Donohoe could have found room to reverse some of the tax break cuts of recent years.
One of the most valuable tax breaks was the relief on medical expenses. Before 2009, you could claim back 41pc of the cost of certain medical expenses in tax relief.
That tax relief was chopped to 20pc in 2009 and it has remained at that rate since. The GP visit card has helped alleviate the cost of doctor visits for many elderly – and for the parents of children under the age of six. However, many people are still facing crippling medical bills. An increase in the rate of tax relief on medical expenses would help people cope with those bills – or afford quicker medical attention.
Budget 2019 changes in the Drug Payment Scheme, a Government scheme which can help curtail medical bills, will certainly help those who regularly face high medical expenses. This scheme is aimed at individuals and families who don’t have a medical card and who normally have to pay the full cost of their medication.
From this January, the cost of buying prescribed drugs or medicine under the Drug Payment Scheme will be no more than €124 a month – as under Budget 2019 the monthly cap will be cut from €134 to €124. Ten years ago however, the cap was set at €90 – so there is still much room for improvement here.
There have been plenty of other changes to our tax system in recent years which have taken money out of our pockets. The tax relief on bin charges was abolished in 2011. Given that many households have seen a substantial increase in their bin charges since, a restoration of that tax relief would help ease the pressure on households.
In 2011, the tax relief on professional subscriptions was abolished. This tax relief was available to workers whose role required them to be members of a professional body and who paid an annual subscription to retain their membership. “Restoration of the relief for professional subscriptions would have been welcome,” said O’Brien. “This issue affects a vast range of employments from human resources to finance to IT. For many workers, being in membership of a professional body is the modern equivalent of the ‘tools of the trade’.”
DRIVERS
Workers who have been given electric cars or vans by their employers could face a tax bill next year, depending on the value of the electric vehicle. This is due to changes in the way benefit-in-kind – the tax which employees pay on non-cash benefits received from their employer – is treated for electric vehicles.
In 2018, employees did not have to pay any BIK if they had a company car which was also an electric car, regardless of the value of the vehicle – because a 0pc BIK rate was in place for electric cars or vans. In Budget 2019, Minister Donohoe extended the 0pc BIK rate for electric vehicles for a period of three years. However, he also put a cap of €50,000 on the original market value of electric vehicles which qualify for this rate. No such cap was in place in 2018. This €50,000 cap means that many employees will now face a BIK bill – unless their employer gives them an electric car worth less than €50,000.
To truly encourage the takeup of electric cars, the Minister should consider removing this cap.
From this January, buyers of new diesel cars will face a higher Vehicle Registration Tax (VRT) bill than they did previously – due to the 1pc VRT surcharge introduced under Budget 2019.
“For those workers who commute long distances, diesel cars remain the optimum choice and many are forced to upgrade their car due to high annual mileage,” said Robert Dowley, partner with KPMG. “The 1pc VRT surcharge on diesel cars will have an impact when they upgrade their car.”
PARENTS
The cost of sending a child to college has become one of the biggest financial challenges facing many parents. The total bill could come to more than €50,000 – if the child is living away when home and attending college for more than four years. At €3,000 a year, the student contribution charge alone accounts for about a quarter of the college bills faced by parents, according to the latest cost of student living survey by the Dublin Institution of Technology.
The student contribution charge has increased steadily over the years -with some of the biggest hikes occurring during the recession and in the early Noughties. Twenty years ago, the charge (whose name has varied over the years) was only €330. The tax relief on tuition fees allows parents to claim back up to a fifth of the cost of the student contribution charge, but only for any second or subsequent children in third-level education.
Many parents therefore lose out on the chance to claim this tax relief – particularly if the age gap between their children is wide or if they have only one child. Were it possible to claim the tax relief on the student contribution charge for the first child in third-level education, this could make this tax break more accessible to parents – and ease the burden of college bills. To prevent the tax relief becoming a runaway bill for the Government, a limit could be put on the amount of relief claimed by the same family.
Another change in recent years which has put parents at a disadvantage is the taxation of maternity pay. Since July 2013, State maternity pay has been taxed. State paternity pay, introduced in late September 2016, is also taxable.
Despite the upcoming increases in maternity and paternity pay, Irish parents would find it very hard to make ends meet if relying solely on those benefits during maternity or paternity leave. For this reason, the taxation of this benefit seems unfair – particularly for those who don’t get their State maternity pay topped up by their employer when on leave. (Employers are not obliged to pay women who are on maternity leave).
For stay-at-home parents, next year’s €300 increase in the home carer tax credit is welcome.Budget 2019 also had some good news for those families with two parents who work outside the home: more of these families are set to get childcare subsidies next year. This is due to an increase in the maximum net income a family can earn to be eligible for subsidies under the Affordable Childcare Scheme.
However, “in our view, this change does not go far enough to encourage parents back into the workforce where they are faced with expensive childcare costs”, said McHugh. “The Government should consider the introduction of a child tax credit such that all parents – whether working in or outside the home – will be treated equally.”
As the old cliché goes, a lot done, more to do…
BUDGET PICKS
PENSIONERS
State pension to increase by €5 a week from March 2019.
Full Christmas bonus to be paid this December.
SELF-EMPLOYED
Extension of the Jobseeker’s Benefit scheme to self-employed from late 2019.
The earned income tax credit to increase by €200 to €1,350.
PARENTS
Two weeks’ paid parental leave for each parent – from November 2019.
Home carer tax credit to increase from €1,200 to €1,500.
WORKERS
National minimum wage to rise from €9.55 an hour to €9.80 an hour from the start of next year.
Small cut in the Universal Social Charge for earnings of between €19,874 and €70,044.
An increase of €750 in the income tax standard rate band – from €34,550 to €35,300 for single individuals; and from €43,550 to €44,300 for married one-earner couples.
HOTELS, HAIRCUTS & EATING OUT
The price of eating out – and staying in hotels – is set to increase next year due to a 50pc rise in the Vat rate on tourism activities. Hotels and restaurants will have to charge 13.5pc Vat next year. The cost of a haircut is also likely to increase.
CIGARETTES
A 50c increase in the excise duty on a packet of 20 cigarettes.
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