The government have promised that there will be no increases in Income Tax rates or bands in Budget 2013 – but they will have to get extra revenue from somewhere else .
The new Property Tax is due to come into effect from July 2013 – and the details are expected to be announced before the end of the year.
We have already mentioned in our Budget 2013 Forecast that we expect PRSI to be extended to income other than income from employment . We also mentioned that we expect tax relief on pension contributions to be reduced for higher rate taxpayers .
This week – Grant Thornton – a firm of chartered accountants – published a forecast of tax changes in Budget 2013 in which they say they expect USC to be increased by 1% on incomes over €16016 and increased by 3% on incomes over €100,000 a year.
The Grant Thornton report also agrees with our forecasts of PRSI expansion to cover unearned income as well as reductions in income tax relief on pension contributions . They are forecasting a standard 20% relief for everyone.
Examples of Effects of Possible Taxation Changes in Budget 2013
The Grant Thornton report gave some figures which produced some attention grabbing headlines in the papers – such as “PAYE workers facing €3,000 tax hit after Budget“.
The examples they used assumed a pension contribution of 15% of salary – which is extremely rare. The vast majority of public and private sector employees who pay into a pension scheme contribute around 4% of their income. Note : Only workers paying the higher 41% rate of income tax will be affected by this cut in relief.
So – for a single PAYE worker earning €40,000 a year – their USC would rise by €240 a year and their tax relief on pension contributions would drop by €336 a year. PRSI would remain the same. So – that would be a total increase in deductions of €596 a year.
The property tax is expected to be at least 0.25% – (even though the IMF suggested a rate of 0.5% ).
A property tax rate of 0.25% on an average priced property (between 150k and €300k) would result in an annual tax of €563 – an increase of €463 from the current €100 household charge.
That brings the total tax increases in this example to €1059 .
For a couple where both are earning €40k – the figures would look something like this. Assuming pension contribution of 4%
USC increase of €480
Loss of tax relief €672
Property Tax increase €463
Total Increase in Tax after Budget 2013 – €1615