Households will see the amount of tax they pay increasing by up to 24 per cent as a result of the forthcoming budget, with those on lower incomes being the hardest hit, according to new research.
An analysis by Grant Thornton would see the amount of tax paid by a family where both parents earned €40,000 – close to the average salary last year according to the Central Statistics Office – rising by a total of €3,250, or 22 per cent.
The family, for the purpose of the article, has two children, and a home with a value of €200,000. A single person earning €40,000 and with a home worth €200,000 will see his or her tax bill rise by €1,750, or 24 per cent. At the other end of the spectrum, a similar family where the main earner has a salary of €150,000 and the spouse a salary of €40,000, and where the home has a value of €750,000, would see their total tax bill rise by €8,750, or 13 per cent.
Tax partner Peter Vale said that because low-income families paid such little tax as a percentage of their income, the introduction of a property tax would cause a sharp rise in percentage terms in the amount of tax they paid. Likewise, he added, a reduction in tax relief on pension contributions would hit such families hard, as the relief as it stands tends to shelter all their income that is eligible for taxation at the upper, 41 per cent, tax rate.
A family where the main earner has a salary of €80,000, the spouse has a salary of €40,000, and they have a home worth €400,000, will see their tax bill rise by €5,410, or 15 per cent. The Grant Thornton pre-budget paper makes a number of assumptions.
It assumes the universal social charge will increase to 8 per cent from 7 per cent for those on salaries of more than €16,000 and less than €100,000, and to 10 per cent for those on salaries higher than that. The study also assumes a reduction in tax relief on pension contributions to 20 per cent from 41 per cent, and an extension of employee PRSI (currently levied at 4 per cent) to cover non-employment income such as dividends and rent on property investments. The Grant Thornton study also assumes that property tax at 0.25 per cent of a property’s value will be levied from July 2013.
Source: Irish Times