Middle income earners are likely to feel the effects of a tight Budget on Wednesday when increases in motor and vehicle registration tax are announced. However, there is no sign of promised cuts to PRSI rates or income tax.
The scale of a tax revenue shortfall of €1.7 billion and the speed with which it has emerged means Minister for Finance Brian Cowen is facing into an even stiffer Budget than expected.
Social welfare increases are likely to be minimal and increased in line with inflation, which is running at almost 5 per cent.
For example, Government sources say the State pension is likely to increase by around €10 to just over €210 for the non-contributory pension and €220 for the contributory pension. The pension will need to increase by this much if the Government is to maintain its target of increasing the pension to €300 over the course of five years.
Child benefit, too, is expected to increase by just under €10, although there is unlikely to an increase in the €1,000-a-year childcare supplement.
New motor tax rates due to come into effect early next year will see car tax increasing by 9.5 per cent for all cars up to 2.4 litres in engine size, and 11 per cent for bigger engines. This means the motor tax for the average 1.6 litre family car will rise by almost €40.
Vehicle Registration Tax (VRT) changes due to come into force in July mean new cars will face registration taxes based on the amount of carbon-dioxide they emit. While smaller cars, diesel engines and hybrids will drop in price by up to 10 per cent, larger petrol models will rise by around 6 per cent. This could add anything up to €4,000 to the cost of a luxury car with a less efficient engine. Under the new system, small cars emitting up to 120g of CO2 per kilometre will pay a 14 per cent VRT rate; those emitting up to 140g will pay 16 per cent; while a top rate of 36 per cent will apply to cars emitting more than 225g per kilometre.
While there will be little scope for tax cuts, Mr Cowen is expected to continue to index-link tax bands and credits to ensure those on the minimum wage are kept out of the tax net.
Similarly, the standard rate band will increase, so those on the average industrial wage will not end up paying the higher rate of tax. Experts say this increase could be in the order of around 5 per cent. Despite the tight Budget, officials said it is likely that the overseas aid programme will increase in line with Government pledges. An increase of around €70 million is expected.
The shortfall in tax revenue means the Government will have to borrow significant amounts of money in order to meet pre-announced spending plans for next year. Mr Cowen has already said that day-to-day public spending will increase by around 8 per cent next year, while capital spending on major infrastructure projects will rise by 12.5 per cent.
However, Minister for Agriculture Mary Coughlan yesterday signalled that day-to-day spending may not increase by as much has been expected. Speaking on RTÉ's The Week in Politics, she said: "There is disappointment in the funding that was expected or anticipated didn't pro forma arrive."
Fine Gael TD Fergus O'Dowd, however, accused the Government of sloppy accounting by underestimating the tax-take by almost €2 billion.
Taxpayers have little hope of a reduction in burden: Business Section
