"It's not about the money, money, money . . ." So sang Jessie J whose hit Price Tag was all over your radio when Fine Gael took office in 2011. Nine years later with many earners squeezed by rising housing, childcare and insurance costs and with near record employment, the upcoming election is all about the money.
What, if anything, have successive Fine Gael budgets done for your pay packet? What’s been the price tag of their nine years in power? Who’s paid the highest share and who, if anyone, is better off? Before casting your vote, it’s worth a look.
Where’s the base?
In 2007 and 2008, VAT was the golden goose for the Irish exchequer. It contributed a whopping 30.7 per cent of funding. But all that changed in the crash. Since 2009, the exchequer’s reliance on our wages for its funds has increased.
Income tax and the universal social charge (USC) are now its biggest income stream, according to Irish Tax Institute figures. Taxes on income now account for an estimated 39 per cent or €22.9 billion of funding.
New kid on the block
When Fine Gael came to power, the new kid on the block was the USC. Introduced by Fianna Fáil in December 2010 as a temporary measure during the fallout from the financial crisis, USC was levied on all gross incomes over €4,004. Before then, whole swathes of people in Ireland had paid no tax on their income. Increases to tax credits and bands in the years up to the bust had seen a progressive narrowing of the income tax base. Subsequent falls in income and rising unemployment narrowed it further.
"The USC was brought in because there were so many people outside of the personal tax base. The whole point was to broaden that," says Anne Gunnell, director of tax policy at the tax institute. "In 2010, about 45 per cent of income earners were outside of the tax net; when the USC was introduced, that came down to only 12 per cent."
While Fine Gael doesn’t bear the “blame” for introducing the charge (designed in part to plug the stamp-duty-sized chasm in public finances), it hasn’t removed it. Almost a decade later, this “temporary” measure has become part of the furniture. In 2018, it contributed €3.7 billion to the exchequer.
USC – who bears the brunt?
When first introduced, the USC was particularly tough for those already struggling on low incomes. The first budget of the Fine Gael-Labour coalition in 2012 brought some respite when the USC threshold was increased to €10,036. The threshold was increased again in 2015, and in Budget 2016, it was increased to €13,000 where it has stayed since. Anybody earning this amount or less does not pay any USC.
“Back in 2010, 45 per cent of income earners weren’t paying tax. When USC was introduced, overnight, we had only 12 per cent outside the net,” says Gunnell. “The trend now is that more and more are moving back out of the net. It’s at 28 per cent now.”
In Budget 2015, the Government introduced a new 8 per cent USC rate on incomes over €70,044, a 1 per cent increase. This has further shifted the burden to higher earners.
Money’s too tight to mention
Although most of the personal tax reductions in recent years have focused on the USC, there has been some movement on income tax rates and credits. In 2015, the higher income tax rate was reduced by 1 per cent to 40 per cent.
In addition, over three budgets, the entry point to the higher income tax rate was increased from €32,800 to €35,300. It was good news for married couples with one earner, too as their cut-off point increased to €45,300. But there was no love for cohabitants with children, however, with the Government continuing to favour those wearing a wedding ring.
The home carer credit, first introduced in 2001, is worth a mention, too. This is available to families where one spouse works primarily in the home, caring for children or dependants. The value of the credit increased from €810 in 2015 to €1,500 in Budget 2019. Home carers can also now earn more, with the income threshold to qualify for the credit rising from €5,080 to €7,200. A reduced tax credit applies for income up to €10,400. The home carer tax credit for 2020 is €1,600. Again, cohabitants with children miss out.
The self-employed have seen some relief, too. An earned income credit of €550 introduced in Budget 2016 stands at €1,500 now. They pay 11 per cent USC on any income over €100,000, however.
More importantly, they have secured access to a range of welfare benefits, including jobseekers’ benefit.
We are family
So how have families fared in the past nine years? A family with two income earners, each on €25,000, for example, has seen its net pay improve by €744 a year compared to a similar family in 2011, according to Irish Tax Institute calculations. That family’s net pay in 2011 would have been €42,991. Nine years later, it’s €43,735.
Earning €25,000 each, they did not have income subject to the higher rate of income tax, at 41 per cent in 2011 or at 40 per cent in 2020 (all their income was subject to the lower income tax rate of 20 per cent in both years). So, they did not benefit from any upward movement to the entry point to the higher rate of income tax.
Considering spiralling housing and insurance costs in the interim, and childcare if both parents work, their net pay increase of 1.73 per cent may not feel like much.
Their neighbours, who have the same gross income of €50,000, but with only one earner, have done better. They have benefited from the increase in the entry point to the higher rate of income tax during the period which has increased by €2,500. They also benefited from the reduction of the higher rate of income tax from 41 per cent to 40 per cent that happened in Budget 2015.
The breadwinner’s net pay in 2011 was €39,483 and in 2020 it will be €41,852. Their fortunes have improved to the tune of €2,369, an increase in net pay of 6 per cent.
Young, free and single
Single, low-income PAYE earners have seen some improvement in their lot. Those with a gross income of €18,000 in 2011 would have paid €880 in tax. In 2020, their tax bill has dropped to €480. That’s an increase in net pay of €399 or 2.3 per cent.
The single PAYE earner on €25,000 sitting at the desk beside them has had less of a boost. They would have paid €3,505 in tax in 2011 and will pay €3,133 in 2020. The increase is about 1.7 per cent.
Those further up the career ladder have fared better. Take a single PAYE earner aged 60 earning €80,000. Her net pay in 2011 was €49,533. In 2020, a person earning the same gross income is netting €51,904. That’s 4.8 per cent more, or an increase of €2,370 in net pay.
Take into account that someone at this later stage of career may have a lower mortgage or be mortgage-free and that extra disposable income goes even further.
The pay packet of a single self-employed person earning €80,000 fares best of all compared to their 2011 counterpart. They’ve seen an 8 per cent gain in their net pay.
Golden oldies?
The grey vote is in the headlines again. Austerity budgets from 2012 to 2015 brought no joy for senior citizens. Their weekly payments stayed at 2009 levels of €230.30 for those under 80 and €240.30 for those over. Budget 2016 added €3, followed by €5 increments over the next three budgets bringing payments to €248.30 and €258.30.
So how are retirees doing after nine years of Fine Gael? Well if you are retired but under 66 – it’s hard to know whether you should budget for a retirement bash or an interview suit. That’s because, back in 2011, the then Fine Gael-Labour coalition legislated for a phased increase in State pension age. The age was increased to 66 from 2014, rising to 67 from January 1st, 2021, and to 68 from January 1st, 2028.
Anyone retiring before they can access the State pension now has to apply for jobseekers’ benefit which is about €45 less and only lasts nine months. After that, your payment is means-tested.
Though an unpopular move, it may be a responsible one given the looming pensions bill of our aging demographics. Feedback on the doorsteps during the election canvas seems to have prompted a U-turn, with Leo Varadkar and Micheál Martin promising a "transition pension" to correct the "anomaly", and other parties taking an even harder line.
In reality, compared to others, at least in tax terms, pensioners haven’t done too badly under Fine Gael. Someone on the State pension with no other income would have had income of €11,976 in 2011. That had risen to €12,912 by 2020, an increase of €936, or about 7.8 per cent.
For those on the State pension with other income of €50,000, they have €2,333 more in their pockets in 2020 than in 2011, an increase of about 5 per cent.
Progressive
Governments over the past two decades have taken steps to reduce income inequality, says the Irish Tax Institute. That means those who earn more are paying more. It also means those who earn less pay less.
While our analysis of shifts in tax over the past nine years shows small increases in net pay for lower earners, they are not paying a lot of tax anyway. If you are not paying lots of tax, then you aren’t going to see massive percentage gains from a reduction in those taxes.
Of the 2.7 million-plus income earners in the Republic, 35 per cent are exempt from income tax, 44 per cent pay at the standard rate and just 21 per cent at the higher rate, according to Revenue figures.
The institute’s figures show that a person earning €75,000 will pay eight times more tax (income tax, USC and PRSI) that someone earning €25,000. A person earning €100,000 pays 12 times more.
"If you look at people with over €50,000 in income from whatever source, they pay 84 per cent of all income tax and USC that is collected," says Pat Mahon, employment tax partner at PwC. "That represents just 27 per cent of income earners.
“What it also means, on the flipside, is that 73 per cent of people who have an income contribute a total of 16 per cent of all taxes collected.”
Where are we now?
Commenting on Budget 2020, the Economic and Social Research Institute has said households will see their disposable income effectively fall. With no changes to tax bands, it finds that disposable incomes will be 1.7 per cent lower in 2020 compared with 2019 as prices rise by 1.4 per cent and wages increase by 4.5 per cent. So most taxpayers are in for an “effective tax rise given inflation and earnings growth”.
Their verdict is that Fine Gael has taken a prudent fiscal stance, even though household incomes will be lower. The past nine years would have been a tough balancing act, whatever the government. There’s always a price tag.
