Budget 2018 brings news of cuts to the USC, the phasing out of mortgage relief and a new sugar tax on fizzy drinks among other things. We take a look at what it will really mean for your pocket.
Finance Minister Paschal Donohoe took to his feet in the Dáil at 1pm today to give his first budget speech, which contained very few surprises despite being described as "tightly under wraps".
Though much of the following will read familiar to anyone who took note of the proceedings in the lead up to Budget 2018, it’s good to hear that many positive speculations have been confirmed.
Let’s take a look.
USC rate cut and 40% tax threshold increase
The widely-reviled Universal Social Charge has seen another decrease in this year’s budget. Unlike in previous years, instead of raising the levels at which people must start paying the USC and income tax, it was decided that the entry point of USC would remain at €13,000 while the rate at which USC is applied will be cut.
Two cuts are to be made:
A 0.5% cut in the 2.5% rate to 2%, a €600 increase in this ceiling to €18,722.
A 0.25% cut to the 5% rate, bring it back to 4.75%.
The total cost of USC measures is given as €177 million. It means that the marginal rate of tax will decline from 49% to 48.75% for those earning up to €70,044.
As was anticipated, the threshold at which people start paying the higher rate of tax at 40% was increased; although it was by just €750, rather than the expected €1,000. It means that someone can now earn up to €34,550 before they start paying the higher rate of tax, while the threshold will rise from €42,800 to €43,550 for married one-earner couples.
Dependent on particular income, each income earner should see an increase of €200-€250 in the coming year.
In our recent #Budget18 Survey, we learned that eight out of 10 (83%) Irish consumers said that a €200 increase would have “little impact” or “no impact” on their spending power for the coming year.
Cigarettes, sunbeds and sugar tax
It hasn't been a good day for smokers, sunbed enthusiasts or anyone who enjoys the odd bottle of fizzy pop.
The excise on cigarettes has gone up by €0.50, bringing the price of a pack of 20 cigarettes up to €12 and the rate of VAT on sunbeds has been increased from 13.5% to 23% in an effort to reduce skin cancer rates.
A new sugar tax, which will add 30 cent per litre to the price of drinks with over eight grams of sugar per 100 millilitres will be introduced in April 2018. This tax rate will be introduced to 20 cent per litre on drinks with between five and eight grams of sugar per 100 millilitres.
The minister said these rates of tax are consistent with the rates being introduced in the UK in April next year and "our sugar tax will commence at the same time subject to State Aid approval".
Many of our customers here at bonkers.ie paid close attention to whether or not we would see an increase in carbon tax, which would have affected household fuel prices.
The news is that no increases were announced for 2018 but the Government does plan on revisiting this issue next year.
Mortgage relief to be phased out
There was a blow for certain homeowners as as it was announced that mortgage interest relief is to be cut by 25% each year for the next three years. The relief allows mortgage holders who bought homes during the boom years to claim back tax on their mortgage interest repayments.
Fianna Fáil attempted to avoid cutting the relief in the budget but conceded it would have to be reduced to pay for other measures. The cut is expected to save the State €50m next year.
Day-to-day medical expenses
Medical card holders under the age of 70 will be pleased to hear that prescription charges are to be reduced from €2.50 to €2 per item, however the monthly cap on such items is to be cut from €25 to €20.
Also, the new maximum amount which patients must pay for drugs and medicines themselves before State subsidies apply under the Drug Payment scheme is to be reduced from €144 to €134 per month.
There were some important changes made to social welfare, where there will be a €5 per week increase in all weekly social welfare payments, including disability allowance, carer's allowance, Jobseekers' Allowance and the State pension. Additionally, an 85% bonus Christmas payment will be paid to all social welfare recipients this year.
Other developments in social welfare at a glance:
€20 increase in the earnings disregard for the One Parent Family Payment and Jobseekers' Transitional scheme.
The threshold for the Family Income Supplement will rise by €10 per week for families with three children. €2 per week rise in the rate of the qualified child payment.
€2.50 increase in the Telephone Support Allowance for those receiving the Living Alone and Fuel allowances.
Home carer credit will rise by €100 to €1,200.
Slow but steady
Pascal Donohoe opened his speech by commenting on the growth we’ve seen as a nation in the past couple of years, particularly where employment is concerned. In one of his opening lines he stated that he intends to “build on progress that would have looked impossible only a few years ago”.
However, on the back of the survey we carried out in the weeks leading up to budget day, where a sizable majority reported that they have seen no increase in their spending power over the last three years, it’s unlikely that many will be taking to the streets to jump for joy in their new-found wealth.
While the recovery might not be moving at breakneck speed, this budget has been quite kind compared to some of the harsher cuts we’ve faced in previous years. Most consumers will have a little bit more money in their pockets for spending next year and even if it’s not as much as they might have anticipated, it’s certainly a step in the right direction.