It’s a case of a little for a lot of people in this year’s Budget, with small increases on the cards for a range of welfare payments, a reduction in the costs of working from home, and a moderate decrease in the tax burden for everyone who pays income tax.
It means that while the boost for families will be moderate, it will be better than last year, when most families gained by as little as €20 a year. Indeed according to figures compiled by PwC, all of the families in this year's survey will benefit and will see an increase in their net take home pay come January - some by as much as €800 a year.
This is because of a €1,500 increase in the income tax standard rate band for all earners, which means that individuals will only pay tax at 20 per cent on earnings of up to €36,800 from 2022, or earnings of up to €45,800 for married couples with one earner.
Tax credits
The personal tax credit, employee tax credit and earned income credit have also increased by €50, while the universal social charge (USC) bands have also been increased in line with the increase in minimum wage.
The biggest winner in this year’s survey then, is unsurprisingly the family who pays the most tax - our high earning couple, Frank and Alison, who have combined income of €250,000. Thanks to changes to income tax and USC, they’ll save almost €70 a month, or about €840 a year, come January.
Increases in take home pay will be experienced across the board however. Pensioners Lesley and Kitty will see their combined state pension payments increase by €10 a week, boosting their income, while their tax burden will also fall. This means a further €200 annual boost to their income, due to aforementioned tax changes, while they will also continue to benefit from the reduced rate of USC for those over 70 years of age.
Middle income workers such as single parent public sector worker Tom will also benefit. On his annual income of €36,000 he will see a boost of about €25.50 a month/€305 a year. Not massive perhaps, but Tom may also benefit from the extension of the Help to Buy scheme and free GP care, as well as increased investment in childcare.
Property bills
For low income workers such as Rebecca, who is earning €22,000 a year, the changes will see her keep about €108 a year more in her pocket, and will keep more of her income out of the 4.5 per cent USC band. This year’s Budget also means that her income tax burden has fallen for the first time since 2010 - a staggering 12 years.
However, while it wasn’t covered in yesterday’s budget, the biggest way many families will save over the coming year is through reduced property tax bills.
As Lisa McCourt, a senior manager with PwC, notes, “The revised local property tax valuation bands for 2022 may reduce a homeowner’s local property tax bill and we can see this from our profiled families.”
Indeed as an added bonus, our high earning couple will also benefit to the tune of €1,109 a year for the next four years, thanks to a significant cut in tax on their €1.5 million in Dun Laoghaire, south Dublin. Their bill is set to fall from €3,050 at present, to €1,941 come November.
Overall then, this budget will succeed in reducing the tax burden for families across Ireland; however, at a time of soaring energy prices, increased consumer demand and supply chain issues, which are pushing up inflation, on a "real" basis, the impact of yesterday's measures will likely be muted for most.
Average salaries
This means that rather than families enjoying any “real” benefit from this year’s budget, this year’s changes to income tax are more about keeping pace, or attempting to, with inflation, than offering any real gains.
As McCourt notes, “With prices rising these increases for inflation are now needed so that net take home pay is not impacted and individuals do not find themselves paying more tax at the higher income tax rate.”
Likewise, while many home workers will welcome the changes to the remote working tax credit, the increase from 10 per cent to 30 per cent for energy costs won’t ease the burden of those rising energy bills as much as people might hope.
And, as the Irish Tax Institute pointed out yesterday, Irish families on average salaries continue to be burdened by effective personal tax rates that are high by international standards.
Low income worker: Rebecca (Annual difference: €108)
Rebecca is 33 years old. She worked full-time as a waitress and moved out of her family home in 2019 to rent a one-bedroom apartment. Since Covid 19 restrictions were imposed, Rebecca moved back home with her parents. She was also out of work and received the Pandemic Unemployment Payment (PUP).
She now works as a customer service representative for an online retailer and she works remotely from home. Her annual earnings are € 22,000 a year.
She is happy that the personal tax credit, employee tax credit and USC bands have increased giving her an increase in her net take home pay. She can now also claim for 30 per cent of her utility bills while working from home. She is also training to be a special needs assistant (SNA) and is happy to hear that there will be more recruitment for SNAs.
Single parent public sector worker: Tom (Annual difference: €305)
Tom is 30 years old and a single parent. He lives and works in north county Dublin as a nurse. Tom earns €36,000 a year.
He is paying € 800 for a two-bed apartment. However, he would like to get on the property ladder soon and is hoping to use the Help To Buy scheme to help get his deposit together.
Tom is happy that the 20 per cent rate band, tax credits and USC bands have increased, giving him an increase in his net take home pay. He is also happy that the Help to Buy scheme is still available, that the free GP care for children is still in place, now up to the age of seven, and that there will be further investment in the National Childcare Scheme and ECCE Scheme.
Dual income family: Mark & Linda (Annual difference: €530)
Mark is married, in his 50s, and lives in Louth with his wife Linda. Mark is a self-employed hotelier. Linda has a part-time job as a beautician and earns a salary of €23,000.
They have four children, two of whom now live at home. Mark’s annual income over the last number of years was €152,000.
Mark and Linda were impacted by the Covid 19 pandemic. Their hotel closed during lockdown and while it has since reopened, they have incurred significant costs in ensuring social distancing and experienced a decrease in bookings. Mary was also temporarily laid off during lockdown and received the Pandemic Unemployment Payment (PUP).
While they have seen increased hotel bookings, it is still very challenging for Mark and Linda. Linda has also returned to work part time.
Mark is relieved that the 9 per cent VAT rate for the hospitality sector will remain in place. Mark and Linda are also happy that the 20 per cent rate band and tax credits have increased and that two of their children who are now in college and need to use the bus and train to commute to lectures will receive a discount when using public transport.
Pensioners: Leslie & Kitty (Annual difference: €200)
Leslie and Kitty are married and living in Cork. They own their family home having paid off their mortgage. Leslie and Kitty are in their late 70s. Leslie receives an occupational pension of €22,000 along with the State contributory pension and deposit interest. Kitty also receives the State contributory pension.
They are happy that the reduced rate of USC will still apply, that they will receive an increase in their weekly State contributory pensions and the Christmas bonus, and that their local property tax bill for 2022 will be lower than previous years.
Single-income family: Ellen & Joan (Annual difference: €466)
Ellen and Joan are in their late thirties. They live in Kilkenny in a four-bed semi-detached house.
They have two children aged 13 and seven. Ellen is a pilot. She gave up her job over 10 years ago when their son was born and has now returned to work. Joan, who used to work full-time in a tech company now stays at home with their children. Their annual income is € 75,000.
Due to the Covid 19 pandemic, Ellen’s annual salary of € 65,000 has been reduced by 27 per cent to € 47,500.
They also receive rent from renting out a room in their home and have boosted their income by € 10,000 a year thanks to the rent-a-room scheme. This is within the current tax-free limits of €14,000, so they receive this amount, tax free, on top of Ellen’s salary.
Ellen is happy to see an increase in the 20 per cent income tax band, personal tax credit and employee tax credit and is curious to see what income tax relief will be available for flight crew in the Finance Act. The couple is also happy that there will be a reduction in their local property tax bill for 2022 because of the revised valuation bands.
High earning couple: Frank & Alison (Annual difference: €840)
Frank and Alison are in their early forties with two children. They live in a €1.5m four-bed detached house they own in Dun Laoghaire. Both Frank and Alison are accountants and earn a combined annual salary of €250,000.
Since March 2020, both have been working from home and will now work from home two days a week.
In the last year they purchased an electric vehicle and they are considering buying a new house.
They are happy that they can also claim tax relief for heat and electricity expenses when working from home and that there will be an increase to their 20 per cent income tax band and tax credits.
