Budget 2016 - A little more money in most people’s pockets
Simon Moynihan
Staff Writer

Budget 2016. Cuts to the Universal Social Charge, an increase in the minimum wage, just one tax increase, and a range of increases to benefits and allowances. How will they affect you? Will you be better off?

Well here we are. Budget 2016, lots of leaks as usual, and the headlines have been screaming about the Universal Social Charge for weeks. So much so that if Michael Noonan hadn’t done something about it, there’d probably be someone else in his seat in Leinster House next spring.

Today was actually Michael Noonan’s fifth bash at the Budget and his previous ones have not been particularly pleasant affairs. In fact he said today that “the last few budgets had been very hard”. And people sure noticed them… so much so that some of those Budgets felt a bit like being dangled by the ankles and shaken vigorously.

There has been one notable exception to the Minister’s past tax-thirstiness though – sure, he’s been responsible for plenty of benefit cuts and tax hikes over the last five years – but he didn’t create the Universal Social Charge. And today was the day that he started to dismantle it.

The USC was actually introduced by Brian Lenihan. It was inherited by Michael Noonan in 2011, and in his first Budget he actually took a lot of people out of the USC net by raising the exemption. It was a good first step, but then he didn’t touch it again for the next couple of years… probably because Revenue told him how much cash it was bringing in.*

Universal Social Charge Cuts – more money in your pocket

The the big news today was the USC, what else was it going to be? This is Michael Noonan’s last Budget before the election after all and he had to show the electorate the money.

So, the Minister increased the exemption for a third time, by nearly a grand this time, which he said took an additional 42,500 people out of the USC net altogether. Now workers earning less than €13,000 per will not pay any USC at all.

Anyone earning more than €13,000 will pay USC on all their income, but rates have been cut and bands have been stretched which will put money back in nearly everyone’s pockets. So much so that Michael Noonan said a one income family with two children earning €35,000 a year would gain €57 per month.

Here’s what the USC looks like now for PAYE workers earning more than €13,000

Even though workers earning less than €13,000 will not pay the USC, those earning more than that will still pay the first band up to €12,012 – just like before. However, the middle band has been increased and the rates on three bands have been reduced. It’ll look like this:

  • 1% on the first €12,012 earned – a cut of 0.5% with no change to the threshold.
  • 3% between €12,012 and €18,668 – a cut of 0.5% and a threshold increase of €1,092
  • 5.5% between €18,668 and €70,044 – a cut of 1.5% and no change to the threshold.
  • 8% for earnings above €70,044 – no change
  • 11% for PAYE workers earnings above €100,000

So how much will you save on the Universal Social Charge in 2016?

Well, of course that depends on how much you earn... An average worker in Ireland earns a salary of €36,271 and is currently paying €1,683.57 per year in USC charges.

In 2016, that worker will pay a significantly lower €1,287.95 of USC charges, and save €395.62. Which will put an extra €32 per month into that worker’s pocket. Not quite the €57 the Minister mentioned, but that included other benefits.

Marginal Tax Rate

The marginal tax rate is income tax you pay on the bulk of your income. For an average worker in Ireland it is currently 51% which is made up of 40% income tax, 7% USC, and 4% PRSI. Michael Noonan’s cuts to the USC will actually bring the marginal tax rate down to 49.5%. The first time it’s been below 50% since 2009.

“The only tax increase in this budget”

It’s pretty unlikely that any of Michael Noonan’s pals are smokers. He’s increased excise on cigarettes in every one of his budgets and his huge 40 cent hike last year was responsible for bringing the cost of a pack of fags up to a tenner.

This year he’s slapping another 50 cent onto cigarettes which will see them cost at least €10.50 a pack. Michael Noonan said his latest tax hike will bring in an extra €61.4m in revenue… but it probably won’t. He made similar predictions in each of his last four budgets and revenue from tobacco products actually fell in all but one.

So is €10.50 finally incentive enough for people to quit??

Self-employed – tax credit at last

In a year where equality was written into law in Ireland, there were a group of workers still suffering from economic discrimination. Finally though, the self-employed - lone warriors who create their own jobs - are on their way to being treated as equal economic citizens. Not entirely though – the self-employed tax credit will be worth €550 next year – compared to the €1,650 received by the PAYE crowd. Michael Noonan did say that he’ll level the field over the next few years though.

Increase in the minimum wage

Then it was Brendan Howlin’s turn. He said during his speech this afternoon that he was committed to making work pay and that “a recovery based on low wages is no recovery at all”. A strong statement which saw minimum wage go from €8.65 an hour to €9.15 – and increase of €0.50. It’ll be worth €20 per week or €1,040 per year to minimum wage earners working 40 hours per week.

Child Benefit, Pension Payments, Fuel Allowances, Christmas Bonus

Brendan Howlin also said that “the days of spending cuts are over” and it looks like he meant it. Child benefit will go up by €5 per child to €140. Pensioners will receive an extra €3 per week. The fuel allowance will increase by €2.50 per week. Home carers will also see their tax credit go up by €190 and their income threshold increase by €2,120.

There was plenty more in today’s Budget of course, and it’ll play out across the news for the next few days, but the basics seem to be pretty good.

Put a little more money in most people’s pockets – without, as Mr Noonan said today, “Going back to the policies of boom and bust”. Fair enough.

*In Budget 2015, Michael Noonan increased the exemption for the second time to €10,036 to €12,012 and reduced the lower two bands by 0.5%