Personal Tax Matters
There will be no change to the existing income tax or income levy rates. The Minister did not announce any increases in personal or married tax credits or to the employee tax credit.
The standard rate cut-off point for both single individuals and married couples remains unchanged. The PRSI ceiling also remains unchanged.
The High Income Earner restriction, first introduced in 2007 has been significantly amended. This restriction will now apply for individuals whose income, before availing of specified tax reliefs, is €125,000 (reduced from €250,000 ). A full restriction will apply where the individual’s adjusted income is in excess of €400,000. Those subject to the full restriction will see an increase in their effective tax rate from 20 per cent to 30 per cent. This measure is also likely to increase the number of individuals impacted by this restriction.
Individuals currently availing of mortgage interest relief which would have been due to expire from 2010 will continue to qualify for this relief until the end of 2017 at which stage the Minister has proposed that mortgage interest relief will be abolished. In addition, mortgage interest relief in respect of qualifying loans taken out before 1 July 2011 will continue to qualify for relief for seven years. Transitional measures will apply for mortgages taken out between 1 July 2011 and 31 December 2013.
It is proposed that a new Universal Social Contribution will replace the existing PRSI, Health Levy and Income Levy system to bring it more in line with the taxation system. The Minister indicated that he hopes to introduce this new system in 2011.
The Minister announced the introduction of an annual Irish Domicile Levy of €200,000 for non Irish tax resident individuals who are Irish domiciled or Irish Nationals. This levy will apply where such an individual’s worldwide income is in excess of €1million and they have Irish located assets of €5 million.
Business Tax Matters
The standard rate of VAT will be decreased from 21.5 per cent to 21 per cent with effect from 1 January 2010. This reverses the Minister’s controversial decision to increase the VAT rate in late 2008.
The Minister extended the existing scheme which provides a three year exemption from corporation tax and capital gains tax for new start up companies to new companies that commence to trade in 2010. This is subject to Ministerial Order.
There will be an extension to the existing accelerated capital allowance scheme for energy efficient equipment to include refrigeration, cooling, catering and hospitality and electromechanical equipment.
As widely anticipated, public sector salaries will be reduced by between 5 per cent and 8 per cent for salaries of up to €125,000. A sliding scale has been introduced for salaries in excess of €125,000 with the maximum reduction being 15 per cent on salaries over €250,000. These reductions will be effective from 1 January 2010.
Various measures will be applied to public sector pensions. Most notable amongst these is that going forward pensions will be based on average career earnings rather than on an individual’s final salary which has historically been the case.
In addition, the Minister announced that a new pension scheme will apply for all new entrants to the public service in a bid to bring it more in line with the private sector.
A Carbon Tax on fossil fuels at a rate of €15 per tonne is to be introduced on a phased basis. The tax will apply to petrol and diesel with effect from midnight on 9 December resulting in an expected increase in price of circa 4.2c and 4.9c per litre respectively.
The Minister announced plans to introduce water metering for residential homes in the near future. In effect these water charges will be based on consumption levels above a prescribed allowance. More details will be announced in due course.
The introduction of a property tax is currently being considered by the Minister and we can expect that this will be introduced in due course.
There will be a 50c charge per prescription item subject to a monthly ceiling of €10 per family for prescriptions under the GMS and Long Term Illness scheme.
Excise duty on alcohol is being reduced and will have effect from midnight on 9 December 2009. This will result in a reduction of 12c per pint of beer/cider, 14c per half glass of spirits and 60c per standard 75cl bottle of wine.
A scrappage scheme is being introduced with effect from 1 January 2010 to run for a period of twelve months. VRT relief of up to €1,500 will apply to new cars where a car of ten years or older is replaced.
While the State Pension remains unchanged, all other weekly social welfare schemes will generally decrease by amounts between €8.20 and €8.50 per week with effect from the first week of January 2010. In addition there will be a decrease of €10 per week in the maximum weekly rate payable for maternity benefit and €4.50 for adoptive benefit.
Child Benefit rates will be reduced by €16 per month reducing the lower rate to €150 per month and the higher rate to €187 per month. As a means of compensating lower income families, there will be an increase in the qualified child rate of €3.80 per week and the Family Income Supplement earnings thresholds will be increased by €6 per week per child.
The Minister announced significant cuts to the rates of Job Seekers Allowance and Supplementary Welfare Allowance paid to young adults. The allowance for individuals aged between 20-21, with no dependent children, has been reduced to €100 per week and for those aged between 22 and 24 to €150 per week.
Job Seekers Allowance will be reduced to €150 per week where job offers or activation measures have been refused.