Inside The 4 Year Plan

Barnacle

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I have been looking into the 4 Year Plan to see the affect it will have on the average Joe Soap. For the purpose of the following, I have not covered every item, tried to concentrate on the items that I feel may affect posters on this site or items that they may be interested in (based on previous posts I have read).

Income Tax
There is no proposal to change the actual rates of tax (20% & 41%) however the bands and credits are to be reduced over a 4 year period. Effectively by 2014, the entry point will be €15,300 (2010 - €18,300) for basic rate tax and €30,394 for 41% rate (2010 - €36,400).

Tax Credits will also be reduced over the four years and the 2014 rates will be €3,056 for a single person and €4,584 for married earning one income (2010 - €3,660 & €5,490 respectively).

To convert this into real money, a single person on top rate tax will see a reduction in take home pay of €1,860 and a married couple with one income in the top rate will see a reduction of €2,482. The 4 year plan gives a slightly lower figure than my calculation of €2,310 for the married couple.

It is important to note here that as the changes are only to the bands and the credits, someone earning €50k will have the same charge to income as someone earning €500k or to convert this to a percentage of net income it its 5.1% for €50k and 0.73% for someone earning €500k. So much for "those who have most, pay most".

For those who presently benefit from Employer provided Childcare, this now will be charged as BIK therefore for someone on higher rate tax, it will have a charge to income of approximately 50%. The employer I would presume would also have a charge of 10.75% for PRSI.

Over age 65 will see the Age Tax Credit and Exemption Limits abolished over the 4 years. The effect of this and including the revised credits and limits, after the 4 years will be a charge for a married couple with €50k of between €3k & €4k depending on single income/double income.

Tax Credit for Rent paid for Private Residential Accommodation is to be abolished. Credit lost €800 single / €1,600 married.

Tax Relief for Union Subscription abolished. Charge to income - 20% or 41% of cost of subscription. (No idea if Subscription gets PRSI relief presently, maybe some who pays this could clarify this for me)

Pension Tax Relief
Over 4 years, employee Tax & PRSI relief is to be restricted to 20%. For those would currently pay higher rate of tax, this will effectively have a charge to income of approximately 30% on the contribution made. It would also appear that the employer will still retain his Employer PRSI relief for the contributions made by the employee. Presently if you receive a salary of €40k and do not pay anything towards your pension, your employer is liable for PRSI of 10.75% on €40k, if however you pay €500 per month from your salary to your pension, your employer is only liable for PRSI on €34k .

The measures that they are proposing will not have any effect of the Fat-Cats which they have been referring to. These Fat-Cats will still be able to receive full Tax Relief and PRSI relief on 100% of their contributions. A self-employed Director who sets up a company when he is 50, pays himself a salary of €100k will still be able to receive full tax relief and PRSI Relief on contributions to achieve a fund in the region of €2m after 10 years. This measure will also cause an inequity between Self-Employed (non Directors)/those in non-pensionable employment and the employed in Pensionable Employment, also between pre and post 1995 Civil Servants.

See my other post for more details on this item.
http://www.politics.ie/current-affairs/143950-tax-cut-pension-contributions-but-who-protected.html

For every €100 gross paid into a pension, the charge to net income will be €30 for higher rate tax payer and €10 for a lower rate tax payer.

The plan also mentions the proposal of reducing the limit on Tax Free Lump Sums to €200,000 but there is nothing in the plan to say when this will be introduced and I would not be surprised if there was provision made for some sort of funding certificate to allow previous fund built up to fall under previous rules.

Existing Public Sector Pensioners
For those retired PS and those who retire prior to February 2010, a Levy will be charged depending on the level of the pension. This is scaled and ranges between 0% and 12%. For someone with a gross pension of €20,000 the reduction will be 2.4%, €40,000 will be 5.4%, €60,000 will be 6.6%. If you consider that part of this is the OAP element, the actual reduction percentage wise is higher. These will also be affected by the withdrawal of the Exemption Limits and Age Credit.

Corporation Tax & Patent Income Exemption
Good news that the Corporation Tax is to remain at 12.5% however I was a bit worried when Brian Lenihan was questioned on this during the 4 Year Plan press conference, he said something on the lines that the Corporation Tax Rate was to remain during the lifetime of this plan. The other item that will affect business in particular the Multi-National is the withdrawal of Patent Income Exemption. It remains to be seen how this will affect the Multi-National but I suspect that this was the sacrificial lamb for the retention of the rate.

Property Tax (Land Valuation Tax)
Not to be introduced until 2013 however is based on the site value rather that the property value. Agricultural Land and land that is subject to Commercial Rates will be exempt.

Property Incentive Relief
By and large, these relief are gone but the plan mentions residue relief, which would be the remaining relief unclaimed. The plan suggests that these legacy reliefs are to be phased out over the 4 years. I await the budget on this matter, should be interesting how they are going to do this. Hotels, Car Park Schemes, Section 23 types, Nursing Home, etc fall under this bracket.

Practically everything in this plan affects the low/middle income earners whilst the top earners escape and those in positions of control, well they sail off into the sunset saying happy days. It remains to be seen in the budget if any of the CAT exemptions like Business Relief, Agricultural Relief will be touched but would doubt it very much. There is no provision for wealth tax or asset tax apart from on your own home (or the value of your land) and let’s face it, given the drop in property values our homes are more of a liability than an asset.
 
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havesomeimagination

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Excellent detailed post. The main point that needs to be got across I think is how inequitable the tax changes are. All the changes make the system more regressive. The government have made a clear choice to hit the poor and low-middle income earners by choosing to widen the bands and reduce credits rather than increase the top rate or introduce or a third higher rate for those on 60k+ or 80k+ for example.

One question - does the flat rate property tax planned for the first year apply to all households or only those that own their own home?
 

Barnacle

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One question - does the flat rate property tax apply to all households or only those than own their own home?
Further clarification is needed but from the look of the plan it is to be applied to all land as opposed to households, with the exemptions of Agricultural Land and those where Commercial Rates apply. So this would mean all households, and I would suspect the current €200 is on top.

Whilst on this subject, I wonder if Farm Houses will be exempt given that Agricultural Land is exempt.
 
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Barnacle

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so if you're renting a house would you or your landlord have to pay it?
I would say it is a charge to the owner which is often passed on to the tenant in the form of rent increase. I cannot see this applying directly to the tenant, would be madness and impossible to impose effectively.
 

havesomeimagination

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It also seems crazy they are penalising married couples tax wise more than single people while simultaneously cutting BIK for childcare & child benefit. It's like they designed this to be as unfair as possible. And of course the minimum wage cut means the lowest paid will suffer the most of all. I've already heard of cases of people's wages being reduced to 7.65.
 

havesomeimagination

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I have little doubt these charges will be passed on to renters by landlords through rent increase.
in the UK though council tax based on the size of the house you live in is paid by tenants as well as property owners so that's why I wondered. I take the point about it being passed on through rent anyway though so it doesn't make much difference.
 

CptSternn

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You would think they would encourage people to marry by not penalising them more. Already social benefits are cut to married couples - it encourages couples with kids no to get married. Adding on higher taxes and your looking at even less people getting married, and in turn pushing up the cost of social benefits.
 

Barnacle

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It also seems crazy they are penalising married couples tax wise more than single people while simultaneously cutting BIK for childcare & child benefit. It's like they designed this to be as unfair as possible. And of course the minimum wage cut means the lowest paid will suffer the most of all. I've already heard of cases of people's wages being reduced to 7.65.
Not entirely, the example I gave was for Married Couple earning one income. The calculations change if there was two incomes. If there were two income above the tax thresholds it is the same as two times the single person. The BIK for Childcare is only where your employers provides the benefit.

In relation to the Minimum Wage, this cannot be cut yet. The minimum wage generally affects the catering/services industry, the main problem there is the overtime rate for Sundays.
 

Harmonica

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Lots of little and not so little taxes spread across the board.

Paying the highest marginal tax rate on all money over 30k for a single person is very nasty. I guess when add levies and other add-ons marginal rate will still be 50% or so? I would be interested to see how that compares internationally.
 

Barnacle

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in the UK though council tax based on the size of the house you live in is paid by tenants as well as property owners so that's why I wondered. I take the point about it being passed on through rent anyway though so it doesn't make much difference.
The difference is in the UK it is a charge for benefits, i.e. local library, refuse collection, etc. therefore payable by the person receiving the benefit. Here it will be a charge for having an asset.
 

Barnacle

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You would think they would encourage people to marry by not penalising them more. Already social benefits are cut to married couples - it encourages couples with kids no to get married. Adding on higher taxes and your looking at even less people getting married, and in turn pushing up the cost of social benefits.
The tax system does encourage marriage. If it was two single people with only one income, the tax that would be charged would be based on single persons limits and credits. Being married allows this same income to receive a higher limit and credit.
 


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