Budget 2011 is unique as the framework and some of the planned changes were detailed in the Four Year Plan which was published two weeks ago. The financial adjustment was set at €6b with €4b coming from expenditure cuts and €2b coming from increased taxation. The precise details of the tax changes had to remain until the Budget was published but given the size of the financial adjustment all sectors of society had much to fear when the Minister stood up in the Dail to introduce his budget.
Commenting on the tax changes in Budget 2011 Mairead O’Grady, taxation partner of Russell Brennan Keane said that “the Minister stated he was not anxious to alter the actual rates of income tax but instead he is eliminating or restricting reliefs; reducing tax credits; reducing tax bands; introducing a new Universal Social Charge (USC ) (replacing health and income levies ); and a number of other measures. The combined impact will mean a reduction in net income of circa 3.5 per cent with significant variations depending on income levels. Those who are already struggling to meet bank commitments on property will have significantly higher burdens of taxation as a result of the effective withdrawal of the property incentives and this in turn will add to the problems the banks are experiencing with loans to property investors.”
A summary of the major changes introduced by the Minister are as follows:
The income levy and health levy to be replaced by Universal Social Charge (USC ) with a rate of 7 per cent on incomes above €16,016.
A reduction in the value of tax bands and credits by 10 per cent.
Abolition of various reliefs such as interest on loans to acquire companies; patents; rent relief; share options; trade union subscriptions; subscriptions to professional bodies etc.
The effective abolition of various property reliefs including capital allowances and Section 23 reliefs with certain guillotine measures which take effect from 2014 onwards.
Restriction of €200,000 on the tax free lump sum from a pension scheme with the balance above the new threshold being taxed at the marginal rate.
The abolition of the PRSI ceiling of €75,036 with an increase in the rate from 3 per cent to 4 per cent for self employed persons. There are also changes for public servants on incomes above €75,036.
Increase in excise duties by 4 cent per litre for petrol and 2 cent per litre for diesel.
Significant reductions in the relief for pension contributions with other changes on the operation of pensions generally.
The application of PRSI and USC on employee contributions to occupational pension schemes which will increase the payroll costs for a number of employers.
The maximum allowable pension fund on retirement for tax is reduced to €2.3m from the current level of €5.4m.
The tax free thresholds for capital acquisitions tax are reduced by 20 per cent.
The Minister in framing his budget had to take account of how the measures would be perceived by the international markets. In addition to the measures to increase the burden of taxation the Budget also included some measures to stimulate growth and jobs in the economy.
Commenting on these measures Mairead O’Grady said that “whilst the new measures in themselves are welcome unfortunately this is the fourth Budget with few initiatives to stimulate business or employment”.
A summary of the new initiatives announced is as follows:
A rate of 1 per cent stamp duty on all residential property up to a value of €1m (2 per cent above 2m ) to be introduced with immediate effect and all existing reliefs abolished.
Extension of the three year corporation tax exemption for start up companies commencing a new trade in 2011.
The car scrappage scheme to be extended to June 30 2011.
The travel tax to be reduced to €3 with conditions for review.
The existing BES scheme is to be revamped as the Employment and Investment Incentive with a limit increasing from €2m to €10m and the certification requirements to be simplified.
A tax allowance of up to €10,000 at the standard rate of income tax to encourage individuals to make their homes more efficient.
“In summary the Budget increases the burden of taxes significantly for all tax payers, contains few initiatives to stimulate business or investment and it will be some time before the real impact of this Budget on business and employment can be assessed which is crucial to the Government’s recovery plan for the economy,” concluded Mairead.
For more information please contact Mairead O’Grady on (086 ) 8355 888 or email [email protected].