Tax changes dominate Budget as pensions and welfare rise

Laura Slattery

07/12/2006: Take home pay: Taxpayers will share a €1.25 billion personal tax package next year, following Brian Cowen's decision to increase personal tax credits, widen the standard rate tax band and cut the top rate of tax by 1 per cent.

In a Budget that Bank of Ireland chief economist Dan McLaughlin described as including "something for everyone", the personal tax credit was increased by €130 to €1,760 for single people and by €260 to €3,520 for married couples, while the PAYE employee tax credit will go up by €270 to €1,760 next year.

Figures from PricewaterhouseCoopers show that high-income earners will receive the biggest increases in their monthly pay packets as a result of the Budget. A single worker earning €150,000 a year will add around €138 a month to their take-home pay, while the same worker earning a salary of €40,000 will take home an extra €75 a month.

In last year's budget, it was workers earning about €40,000 who took home the biggest increases in their take-home pay. But the decision to cut the top rate of income tax from 42 per cent to 41 per cent means that it is the highest-income workers who will do the best out of Budget 2007.

However, higher earners' satisfaction will have been partially dampened by an increase in the health levy rate from 2 per cent to 2.5 per cent for people earning more than €100,100 a year.

Mortgage holders have also done well out of Mr Cowen's package. Most first-time buyers will be able to add €66 to their monthly disposable income as a result of the doubling of the ceiling for mortgage interest relief from €4,000 to €8,000 a year for a single person and to €16,000 for married couples. But about half of this increase will be wiped out for typical first-time buyers following today's expected hike in interest rates by the European Central Bank.

As a result of yesterday's Budget, workers will not enter the tax net or start paying PRSI until they begin to earn €17,600 a year, which is equivalent to a rate of €8.65 an hour. Mr Cowen said these measures would remove around 88,000 people from the tax net, including all those on the minimum wage.

About 846,000 people - two out of every five earners - will be outside the tax net in 2007 compared with a third of workers, some 677,000 people, in 2004.

Mr Cowen announced a €2,000 increase in the standard rate income tax band, a measure that he said would ensure that workers earning the average industrial wage will not be liable to tax at the higher rate. This means that a single person can now earn €34,000 before they start paying tax at the top rate.

Single-income married couples will be taxed at the standard rate of 20 per cent on the first €43,000 of their income, also up €2,000 on last year.

People aged 65 and over will receive an increase in the age tax exemption limit, which will rise from €17,000 to €19,000 for single people and from €34,000 to €38,000 for married couples.

© 2006 ireland.com