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Personal Finance

Here’s everything you need to know about Budget 2021

Here’s everything you need to know about Budget 2021
Daragh Cassidy

Daragh Cassidy

Head Writer

Under the twin threats of a looming hard Brexit as well as the Covid pandemic, this year’s budget was one like no other. 

To say that these are unprecedented times is a well worn phrase at this stage. However it's painfully true.

As such the objective of Budget 2021 was clear - to mitigate the economy from the worst effects of the current crisis by pumping unprecedented resources into everything from social welfare to health and education. 

Spending by Government will increase by over €17 billion compared to last year, making it by far the biggest budget in the history of the State, while the deficit next year is forecast to be over €20 billion or over 5% of GDP. 

Yet despite this, few of us can expect to feel much better off next year as there was limited room for tax cuts while the old reliables such as cigarettes, petrol and diesel, and the carbon tax all rose. 

Here we take a look at the main announcements and what it all means for your pocket. 

USC and income tax

For the second year in a row there were no big changes to taxation, meaning most of us will see no major increase in our take home pay next year.

  • Income tax and employee PRSI rates will remain the same.
  • The threshold for the second USC band will increase slightly from €20,484 to €20,687. 
  • The point at which people hit the higher 40% rate of income tax will remain at €35,300 for a single person and €44,250 for married one-earner couples. 
  • The PAYE/employee tax credit and the single person tax credit will both remain at €1,650 i.e. €3,300 in total. This means the level at which most employees begin to pay 20% income tax remains at €16,500 as per the last few years.
  • However the earned income tax credit for the self-employed will increase by another €150 to €1,650.
  • The self-employed will also be able to defer tax payments for one year without incurring interest.
  • There is an increase in the Dependent Relative Tax Credit from €70 to €245. You may claim this credit if you maintain a relative at your own expense. You can claim for your relative, or a relative of your spouse or civil partner.
  • There will be changes to the tax relief available to those working from home with broadband now a cost against which workers can claim relief. This is in addition to a tax deduction for utility expenses such as heat and light.

USC bands 2021

Rate

First €12,012

0.5%

€12,012 to €20,687

2%

€20,687 to €70,044

4.50%

Balance

8.00%

Tax bands 2021

20%

40%

Single

€35,300

Balance

Married (one earner)

€44,300

Balance

Single parent family

€39,300

Balance

Decrease in lower VAT rate to 9%

The 13.5% VAT rate which largely applies to businesses in the tourism and hospitality sectors (but also applies to a wide variety of consumer services such as restaurants, newspapers, hairdressing, coffee shops, and cinema and concert tickets) will reduce to 9% from 1 November until December 2021.

Whether businesses choose to pass this VAT reduction onto consumers is up to them but at least it means there should be less upward pressure on prices.

However the standard VAT rate which was reduced to 21% as part of the July stimulus package was not extended and is scheduled to return to 23% next March. 

Carbon tax

The Government has already committed to increasing the carbon tax to €100 per tonne by 2030 so another increase in the tax was almost a forgone conclusion. 

The tax will increase by a further €7.50 to €33.50 per tonne of CO2. 

Petrol and diesel will be hit by the increased charge from midnight while other fuels will be spared until May 2021.

So what exactly does that mean for your pocket?

Below is an approximate outline of what the tax increase will add to various fuels, as well as the total amount now being paid in carbon tax.

Fuel

Increase

Total

Gas

€18 a year

€79 a year

Petrol & diesel

1.9 cent per litre

8.4 cent per litre

Bale of peat / briquettes

17 cent

76 cent

Bag of coal

79 cent

€3.52

Home heating oil**

€19 per fill

€84 per fill

*Based on average annual consumption of 11,000 kWh of gas

**Based on 900-litre tank

Some small good news is that the Minster has promised to ringfence €100 million of the money raised from the carbon tax into a scheme to help improve the energy efficiency of people’s homes.

Social welfare

Like last year, there was no across-the-board increase to social welfare payments, with spending far more targeted than in previous years. Having said that, the Christmas Bonus will be paid at a rate of 100% again this year to most social welfare recipients, including those on the PUP. 

Usually the bonus is restricted to people on long-term welfare payments and those on the live register for 15 months or more. However the Government is reducing the eligibility criteria for this year’s bonus to four months.

There was no increase to the State Pension or Jobseeker's Allowance.

Controversially, perhaps, the PUP was not restored to its previous level of €350. 

Other developments in social welfare at a glance are:

  • A €5 increase in the Living Alone Allowance to €19 a week.
  • There'll be a €3.50 per week increase in the Fuel Allowance to €28, partly to help offset the impacts of the carbon tax rise.
  • There will be an earnings disregard for those on the PUP, meaning claimants will be able to earn a small amount each week through intermittent work and not lose their payment.
  • The controversial increase in the pension age to 67 that was planned for January 2021 won’t go ahead for now, though the increase is likely to be back on the agenda as soon as the Covid crisis subsides.
  • The Qualified Child Payment is rising by €5 a week for over 12s and by €2 a week for under 12s.
  • The Carer's Support Grant is being increased by €150 to €1,850 per year.
  • The Parent’s Benefit will be extended by a further three weeks.

Housing 

A budget of €5.2 billion has been allocated to the department of housing - an increase of over €700 million on last year. 

The main announcements were: 

  • The enhanced Help-to-Buy scheme for first-time buyers, which now allows a tax rebate of up to €30,000, has been extended until the end of 2021. You can find out more about the scheme here.
  • €500 million is being made available to facilitate the construction of 9,500 new social housing units in 2021.
  • €65 million will be available to fund the deep retrofitting of poorly insulated social housing stock.
  • An additional €22 million will be provided to support homelessness programmes including additional beds and the introduction of a Cold Weather initiative.
  • Extra funds are being made available to support an additional 15,000 Housing Assistance Payment tenancies and 800 Rental Accommodation Scheme tenancies. 

The old reliables

It hasn't been a good budget for smokers (is it ever?)

The excise on cigarettes has gone up by 50 cent, bringing the price of a pack of 20 cigarettes up to around €14.

In better news excise duty on alcohol and petrol and diesel has remained unchanged once again this year but changes to the carbon tax obviously mean motorists will still be hit. 

Health

An extra €4 billion was announced for the health service, which will include capacity for 100,000 Covid tests per week, as well as funds for personal protective equipment and other measures. 

Earlier in the month, The Minister for Health, Stephen Donnelly, secured funding for a range of measures, some of which had previously been promised as part of last year's budget. These included:

  • An increase in the over 70s medical card income limits to €550 per week for a single person (currently €500 per week) and to €1,050 for a couple (currently €900 per week). 
  • A reduction in the Drugs Payment Scheme threshold by €10 to €114 per month. 
  • A €0.50 reduction in prescription charges for all medical card holders. 

It’s expected that all of these measures will take effect from 1st November. As a result, no new measures were announced by the Minister for Finance in these areas. 

Other developments in healthcare announced today at a glance are:

  • Five million additional home care hours will be made available, bringing total hours to around 24 million.
  • Funding for an additional 1,146 acute hospital beds and 1,250 community beds. 
  • €5 million will be made available to community-based dementia support services.

Motoring

The motor tax regime is also changing, mainly due to the current system for testing how polluting a car is (the NEDC system) being replaced by a new system known as WLTP (Worldwide Harmonised Light Vehicles Test Procedure).  

Currently, cars first registered prior to July 2008 are taxed based on engine size, while those registered after have been taxed based on NEDC emissions ratings. These cars will continue to be taxed based on these criteria.

However, from 1st January, all new cars will be taxed based on their WLTP ratings. This means there will be more motor tax bands in the new regime, with the lowest annual motor tax rate of €120 only applying to zero emissions cars, while a new €140 rate applies to vehicles with emissions of 1g/km to 50g/km.

Changes are also being made to Vehicle Registration Tax (VRT), with the number of bands increasing from 11 at present to 20. 

Whereas current VRT rates range from 14% to 36%, the new VRT table has a range from 7% for cars with the lowest emissions (typically electric cars and plug-in hybrids) right up to 37% on vehicles with carbon emissions over 191g/km. 

Grants for electric and hybrid vehicles will expire at the end of this year. However changes to the VRT system should compensate for the difference.

However according to the Society of the Irish Motor Industry (SIMI), the changes will mean a €1,000 increase in the price of the average new car.

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