Budget 2017 bring news of cuts to the USC, a reduction in DIRT and a 'help-to-buy scheme' for first-time buyers. We take a look at what it will really mean for your pocket.
Maybe Michael Noonan should’ve taken a leaf out of Hillary Clinton’s book and hooked himself up with a private server when prepping this year’s Budget, which had more leaks than Julian Assange in a punctured dinghy.
Details of the the so-called ‘Brexit-proof’ budget were well-known to the dogs on the street well before Mr. Minister took to his feet at 1pm this afternoon.
And his speech, which was delivered with that familiar Limerick lilt, contained very few surprises and plenty of scraps of good news. Not necessarily great news, but good news.
Let’s take a look.
Universal Social Charge cut
The widely-despised Universal Social Charge, which remains one of the most flagrant representations of the recession that rocked this country, has been trimmed by 0.5% in each of the three lowest rates.
So, from January 1st, a rate of 0.5% will be applied to incomes of up to €12,012, 2.5% will apply to incomes between €12,012.01 and an updated ceiling of €18,772 and 5% will apply to incomes between €18,772.01 and €70,044.
The cut will mean different savings amounts for different households of course, but someone with an annual salary of €35,000 (which is just below the national average) will be €175 better off next year. Another way of looking at it is an extra €3.37 in your weekly budget.
A big bite was taken out of the USC in 2016’s Budget too, so it’s encouraging to see the erosion of this rate continuing this year.
State Pension increase
In some quarters, this budget is being called the ‘Grey Budget’, to emphasise its focus on the elderly of Ireland.
And the most eye-catching benefit for the nation’s older individuals is the €5 weekly increase in the State pension, set to be introduced in March. This follows last year’s €3 increase and is another sign – albeit small – of the country crawling out of from under the shadow of the recession.
On top of this, prescription charges for medical card holders who are over 70 has been cut, with the Independent Alliance claiming credit for this change.
Finally, the Christmas bonus has been increased to 85%, which will mean an extra €24 to spend at one of the most expensive times of year.
First-Time Buyers’ help-to-buy scheme
There was a sharp intake of breath within the Dáil and among the nation’s prospective first-time buyers when Michael Noonan announced that it was time to talk about housing.
There has been endless speculation about what would be done about the country’s well-documented housing issues. Some expected a €10,000 cash top-up for first-time buyers struggling to meet the Central Bank’s deposit requirements, while others warned about the potential impact of dramatic changes on property prices.
What the Government has landed on is a tax rebate of up to 5% for first-time buyers who purchase a newly-built house with a value of up to €400,000. The rebate will cover the last four years of an individual’s tax returns and is applicable from July 19th of this year until 2019.
Michael Noonan’s statement that “second-hand houses are not included in the help-to-buy scheme” seemed to awkwardly echo throughout the Dáil chamber and will be received as a blow to prospective first-time buyers who had their eye on an older home and were hoping for a bit of help making up a deposit.
With interest rates at historic lows, the country’s 41% tax on interest earned (known as DIRT) has made locking money away all the less appealing.
However, the DIRT rate is to be reduced by 2% a year for the next four years, meaning it will reach 33% in 2020.
So, for example, if you have currently have €10,000 earning 1% interest in a savings account somewhere, the DIRT rate cut will save you about €2 a year.
Although this won’t result in any notable increases in savings returns in the immediate future, it is a small step in the right direction.
What about the Old Reliables?
There was only one tax increase in last year’s budget, and there’s just one in this year’s too. And, you guessed right, it’s the nation’s smokers that are set to take the hit once again.
The price of a packet of 20 cigarettes is to be increased by 50 cent. But the other traditional ‘old reliables’ of alcohol and petrol won’t be touched.
This means that the cost of smoking a pack a day will rise to over €4,000 a year. And that's more than it costs most people to keep a car on the road in Ireland.
And the rest
The threshold for inheritance tax liability has been increased from €280,000 to €310,000 for children receiving an inheritance directly from their parents.
The minimum wage is to be increased by 10 cent an hour, to €9.25. This follows last year’s increase of 50 cent an hour. And it's because of this increase that the ceiling for the second wage bracket for USC has been increased to €18,772.
Also, jobseekers’ allowance will be increased by €5 a week.
Slow and steady
There won’t be many people taking to the streets for a shopping spree on the back of Budget 2017, but most people will be a little bit better off because of it. In our analysis of Budget 2016, we pointed out that the 41% DIRT rate was notably untouched so it is good to see the Government take action here.
And the USC cuts will benefit an estimated 1.3 million people, which is another headline-worthy piece of positive news.
However, time will only tell if the Government’s ‘help-to-buy’ scheme will have the desired effect of helping first-time buyers get on the property ladder, which has become so elusive over the last decade in this country.
Last year’s budget was something of a turning point, with austerity measures being eased in favour of some benefits. And this year, we've seen a slow and steady continuation in this direction, which is positive news overall.