So now that the dust has settled on Paschal Donohoe's second budget, we've been taking a look at who fared best, who was hardest hit and how to get around – or minimise the impact – of any adverse tax measures that may come your way in 2019.
When does the budget take effect?
For smokers, it's too late to stock up from your local store. The extra 50 cent on a packet of cigarettes kicked in at midnight on budget night bringing the cost of a pack of 20 to €12.70. If you're a smoker on social welfare, the bite may feel extra nasty because the €5 increase in welfare payments will not take effect until March of next year, leaving four and a half months before you see the benefit of that. However, there is some consolation in the form of the full restoration of the double week payment at Christmas, known as the Christmas bonus. For PAYE workers, the changes to USC and income tax bands will kick in from January.
On the plus side, there was no increase in excise on alcohol, and, if you drive a diesel car, the expected increase in the carbon tax, or in excise on diesel, didn't materialise meaning it's still a considerably cheaper option that a petrol fueled car when you pull up on the forecourt.
Who fared best?
In truth, there was no one big winner from Budget 2019. It was what might in the past have been referred to as a 'Late, Late' budget – something for everyone in the audience. From a cumulative point of view, pensioners have probably done well from successive budgets. They will benefit from an additional €5 in the state pension as well as the return of the full Christmas bonus. There was also a further 50 cent reduction in the prescription charge for over 70s, bringing the charge to €1.50 per item.
Single income families got a nice boost from the budget in the shape of a €300 increase in the home carer tax credit, meaning a family, in which one of the spouses stays at home, will be able to earn €1,500 that they don't have to pay tax on. The credit is for married couples or civil partners who are jointly assessed for tax where one of them works in the home caring for a dependent person. According to Department of Finance figures, a single income family on €55,000 will be €552 better off a year. A single income family with no children will only be €252 better off as a result of changes to USC and income tax bands.
Self-employed people made some strides towards equality with their PAYE paying counterparts in this budget, but are still around €300 worse off when it comes to taxes and allowances. The earned income credit – the amount a self-employed person can earn before paying tax – rises by €200 to €1,350. (The equivalent for a PAYE worker is €1,650). There will also be an entitlement to jobseekers' benefit if they are left without a livelihood.
Who fared worst?
If there was to be a loser in Budget 2019, it was probably low income workers where gains were limited. For those on the minimum wage, they will benefit from the 25 cent increase to €9.80 per hour. A worker on €22,000 will be better off about €2 per month. They will benefit from the ceiling on the second USC rate band being increased from €19,372 to €19,874, but they won't get any benefit from the increase in the standard rate tax band.
Many will be disappointed that nothing was done to tackle rising rents and suspect that landlords will be slow to pass on the savings they make from an increase in the mortgage interest relief that they will now get for rental properties.
The widening of the threshold for affordable childcare, while welcome for thousands of families, still sees it limited to fairly modest incomes. At €60,000, it means if both workers were on the average wage of just below €37,000, they would not qualify.
How to minimise the impact of taxes
Unlike the situation ten years ago, no workers have been hit with tax increases on their earnings and, although the savings are fairly marginal, they are welcome. However, some will argue that the gains made in their pay packets will be more than offset by changes elsewhere. For example, the increase in the VAT rate in the hospitality sector will likely see price increases in hotels, restaurants, cinemas and hairdressers.So how do you minimise the impact of such increases on your pocket? One obvious way is to become selective and shop around.
But it's also worth bearing in mind that the cut in the VAT rate from 13.5% to 9% was funded in the early years through a €2.5 billion raid on private pension funds. For anyone who feels aggrieved by that move, the good news is that workers can claw back some of those losses, and offset some of their considerable income tax bills, by making bigger pension contributions. It's a very effective means of paying less income tax. If you pay tax at the higher 40% rate, a €100 contribution to a pension will only have a net cost of €60. (The logic here is had you not put that money into the pension, the other €40 would have gone to the government as income tax.)
Pensions carry other tax benefits too. They grow free of tax, unlike deposits. Interest on savings – although still minimal thanks to historically low interest rates – are subject to DIRT of 35%. When pensions are drawn down later in life, a retirement lump sum can be taken tax free.
In the market for a car?
For those looking at buying a diesel car, act now, or otherwise they might want to sit down and do the maths first. The Minister announced a 1% surcharge on VRT (vehicle registration tax) of new and imported diesel cars from January. (Imports have become a particularly popular option with the collapse in the value of sterling since the Brexit vote in 2016). Alan Nolan, Director General of the Society of the Irish Motor Industry (SIMI) says the 1% surcharge will add around €400 on average to the price of a new diesel car. And he points out that diesel cars were already facing an increase in VRT next year of the order of around €450, even before this measure was announced, due to new EU emissions tests.
Despite petrol remaining a more expensive fuel, there are considerable savings to be made by buying a hybrid. Firstly, it will cut your fuel bill and, secondly, VRT reliefs on hybrids have been extended to the end of 2019. The current VRT relief on hybrids is €1,500. Hybrids still account for quite a low proportion of car sales in Ireland but it is growing.
And for those who can cope with the burgeoning first world concept of 'range anxiety,' going full electric is a good option. There's a grant of up to €5,000 available to put towards the cost of buying a new electric car valued at €20,000 or more. (Smaller grants are available on less valuable cars. For cars valued under €14,000, no grant is available.) In addition, there is a €600 grant for electric car owners to help cover the purchase and installation of home charge points. The savings over the longer term can be considerable.
The Sustainable Energy Association of Ireland (SEAI) estimates that a Nissan Leaf 40kWh car driven 16,000 kilometres would use 3kWh of electricity costing €219 in electricity (based on night rates). A Ford Focus petrol car driven 16,000 km would currently cost €1,730 over 12 months at 1.50 per litre. That's a saving of €1,511 over the year.
As frustrating as tax increases of any kind are, the reality is that it could have been much worse. For those who were earning at the time, just cast your mind back to the budgets of the latter years of the last decade. However, although families will pay a little less tax on their earnings next year, they will still be paying more tax in 2019 than they did in 2008.