People earning more than €40,000 are set to be the big winners in Budget 2023, with less benefit for those on lower incomes.
A household made up of two working adults earning more than €40,000, with two school-age children, will benefit by over €2,000 when the measures announced by Minister for Finance Paschal Donohoe kick in, but those on lower incomes and minimum wage will benefit only very slightly from the tax changes.
Modifications to the income tax system, one-off payments covering energy costs and child benefit as well as tweaks to back-to-school and healthcare costs and reductions in third-level fees should make it the most consumer-friendly budget in modern times.
However, the consumer focus comes shrouded in gloom and with a much darker context than the top lines suggest. Spiralling inflation and the deepening cost-of-living crisis means that even those families getting the biggest budget bounce will still be worse off, with many likely to be down more than €3,000 over the next 12 months when compared with 2020.
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And people on lower incomes, those who have been hit hardest by cost-of-living increases, are facing into a long and difficult winter despite social welfare increases and the one-off payments.
Okay, so that started well and then got pretty depressing. Can we go back to the good news?
The big ticket item for many middle-income earners will be the tax changes. The top rate of tax of 40 per cent will now kick in at €40,000, up from €36,800. That will see someone earning over €40,000 better off by about €640 a year, added to which there will be an additional tax credit of €75. Tweaks to the universal social charge (USC), meanwhile, will be worth about €50.
That is good news. Will those earning €36,800 or less see any benefit from the tax changes?
Some will get the €500 lump sum for families availing of the working family payment but others will only gain the tax credit of €75 and the USC change of just under €50. According to Sinn Féin’s finance spokesman Pearse Doherty, a person earning €135,000 will be better off by €830 as a result of the tax changes while three quarters of earners will gain less than €200 a year.
Were there any other tax changes?
Renters will get a tax credit worth €500 next year rising to €1,000 in 2024. The measure is to be applied retrospectively to rent paid in 2022.
Will that make a difference?
Not a big one. Threshold, the housing advice charity, says it will cover just seven days of rent in Dublin, adding that the measure shows “a failure from the Government to recognise the depths of the rental crisis”.
Any other tax changes I might benefit from?
The tax-free threshold for voucher-based bonuses that employers can give workers goes from €500 to €1,000.
Okay, so moving on from taxes how else will I benefit?
The energy credit of €600 for all households will at least partially offset the increases in the cost of domestic gas and electricity. The first €200 will be applied to all bills in the run-up to Christmas, with two further €200 credits coming in the new year.
Will that make a difference?
It will but when you think that the cost of energy this year has climbed by more than €2,000, for many households the benefit will soon be swallowed up.
What about people on social welfare?
There will be a €12 increase in welfare payments and a double payment in October, as well as the payment of the Christmas bonus as normal. There will also be a double payment of child benefit in November.
So is it a good news story or not?
Rarely has there been a budget that depended so much on context. In many respects a budget which gives billions of euro back to people is a very good news story, but all the measures that have been rolled out will only make a dent in the costs many households will face in the months ahead. The energy credits will be welcomed but as with the €200 credit that was attached to people’s bills ahead of the summer, it is likely they will be quickly swallowed up by bills which will double over the course of the winter.
Could the Government have done more?
Some people will say it could and should have done more and there will be people who will benefit more than others and perhaps even more than they need to. Despite all the measures coming down the tracks people will still need to take whatever steps are available to them to cut spending and reduce their energy usage in order to get through what will be a long, hard winter for many of us.
