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Budget season is upon us, and here at Nudge, we’ve been keeping our eyes peeled and ears to the ground for all the changes that could be revealed this autumn.
Kicking things off first is Ireland, where Budget 2019 is due to be unveiled on 9 October by minister of finance Paschal Donohoe. So, what can we expect from the Ireland 2019 budget?
A new rate of income tax?
There’s been talk of a third rate of income tax in addition to the existing flat rate of 20% and the higher rate of 40%. There’s currently a standard cut-off rate which dictates which of these rates people pay, of between €34,550 and €69,100 depending on circumstances. A higher rate would mean an additional cut-off rate above this, at which any new rate would kick in. There has been speculation that this could be 43%.
There is also very likely to be an increase to these standard cut-off rates (last year they went up by $750 for all earners) and some tax credits, while there may be adjustments to PRSI and the USC too.
These kind of tax changes are one of the most tangible for many people – it can be seen on their payslips and felt in their pockets. While significant fluctuations are unlikely, there may be some people for which an increase in tax and reduction of income could further stretch their already finely balanced finances. And for those seeing a reduction in tax and increase in income, it’s essential to put that extra to good use.
Taoiseach Leo Varadkar has indicated the government is working on a form of jobseekers payment for the self-employed and there is likely to be an increase in social welfare payments in line with inflation.
But all things point to families with children being the main focus, in particular, the affordable childcare scheme. It’s available to everyone, not contingent on income, and currently offers €80 per month to support the care of children between the age of six months and three years. Any increase to this subsidy and reduction in childcare spend will go some way to reducing the pressure on parent’s budgets.
Support for parents
And there could be more for parents. More details of already public proposals to offer two weeks of paid parental leave are likely to feature in the Budget. Currently parents are entitled to up to 18 working weeks leave, but this is not paid. Action is already being taken to increase support for parents, with plans to increase this unpaid leave entitlement to 26 weeks through the Parental Leave Bill which is working its way through the legislative process.
Both these efforts are indicative of the wider attention being paid to work-life balance.
This is almost a certainty for a rise, with plenty of noises from Varadkar over the summer signalling this intention to support Ireland’s climate change obligations.
First introduced in 2010, there is currently a rate of €20 per tonne of carbon dioxide released and it applies to kerosene, marked gas oil, liquid petroleum gas, fuel oil, natural gas and solid fuels.
This tax increase is another one which is likely to be felt in people’s pockets, with a potential knock-on effect on petrol prices and the costs of running a car as well as heating homes.
Donohoe already indicated at last year’s Budget that this tax on deposit interest will fall again as he targets a rate of 33% by 2020. That’s means a drop in 2019 to 35% from the current rate of 37% which will be a small reward for savers, particularly in such a low-interest rate environment.
There have been calls to reduce Exit Tax – the tax on gains made from investment funds – from 41% to bring it into line with Dirt, however there is far less certainty of this happening.
Mortgage interest relief
Plans to end mortgage tax relief by 2021 mean it will be reduced to 50% in 2019. The number of people with a mortgage that qualifies for this (taken out between 2004 and 2012) is thought to be around 300,000.
While it’s unlikely that the finance minister will want to complicate the Budget with such a contentious issue as Land Property Tax (LPT), it’s something worth understanding – just in case it does pop up, but also in preparation for the changes which do lay ahead.
A review of LPT is currently taking place. The rate is set now at 0.18% of the value of a home. That’s based on it’s value in 2013, the year the tax was first introduced, and there has been no update since. Revaluation is due in 2020 based on market values on 1 November 2019. But there are fears this could result in massive tax bills for homeowners because of the significant rise in house prices over the past five years. This one is likely to get political with an election expected at around the same time these changes are due.