The impact of tax on the cost of living - Today FM
The Government has announced a package that will cost €450 million to help fight the rising cost of living, primarily made up of the enhanced energy credit.
Daragh Cassidy, Head of Communications at bonkers.ie, appeared on The Last Word on Today FM to discuss a range of Government taxes paid by Irish consumers that could be cut to help lower the rising cost of living.
Listen back to the interview above, or take a look at the main points discussed in the interview below.
What is the household electricity allowance?
It was announced before Christmas that every household in Ireland would get a one-off €100 off their energy bills this spring.
With the increased pressures of the rising cost of living and the spike in energy costs, this €100 has since been deemed inefficient. Now it seems as though the €100 credit will be increased to €227, which includes VAT. This may cost between €385-400 million.
The other €50 million will go towards smaller measures that impact people’s pockets and will see the fuel allowance increase. It will increase in terms of eligibility and there’s an expectation that the fuel allowance season will be extended past March. The weekly work payment may also be included, and there is talk of hospital charges being waived for a particular time.
Can the Government cut taxes?
The Government will often complain that their hands are tied when it comes to the rising cost of living. In some ways, they are. Brexit and increasing energy prices are largely outside of the Government's control.
However, when you delve into all the ways that the Government takes money from our pockets, outside of income tax, it really does add up.
How much tax do we pay on our energy bills?
Quite a big amount. Firstly we have VAT, which is 13.5%. If someone was to use an average amount of gas and electricity and paid standard rates, they’d be paying around €270-€280 in VAT to the Government annually.
The VAT is levied on the net price, so as the price of energy has increased, the VAT taken by the Government has increased as well. The Government is actually making money off the energy crisis, which a lot of people may forget.
There’s also the PSO levy which adds around €58 a year, including VAT, to electricity bills. Then, of course, there’s the carbon tax, which is on gas bills, and that will add around €93 per year when the new €41 rate kicks in on home heating fuels from May.
When all of these are added up, the average household will be paying over €400 a year in taxes to the Government for energy.
What taxes and stamp duties are on banking products?
You’d think that in this day and age, we’d be encouraged to use cashless payments. However, there’s a €30 stamp duty on credit cards, which is strange. It’s not common in other countries. It’s not a huge amount of money, but regardless of how much you use your credit card, you’ll get hit with €30 a year.
There’s also a 12 cent charge every time you take out cash, up to a maximum of €5 a month. Someone who makes 4 ATM withdrawals a month will be charged a maximum of €5 a year. Then of course there’s a stamp duty of 50 cents on bank drafts and cheques.
Overall you’re looking at €36 a year going to the Government.
What stamp duty is on insurance products?
5% goes to the Government, 2% of which goes to the Insurance Compensation Fund. This is an important feature that covers policyholders in case an insurer goes under. The other 3% in stamp duty lines the Government’s pockets though.
If you were to take a car insurance premium of €650 a year, around €20 in tax goes to the Government. If you have an average home insurance policy of €350 a year, that’s another €11 going to the Government. If you add that up, you have another €30 in stamp duty.
What Government taxes do we pay for petrol and diesel?
A huge amount. Petrol and diesel are at record levels at the moment. A litre of petrol is around €1.75 at the moment.
There’s the carbon tax, VAT, excise duty and also the NORA charge as well on petrol and diesel. When you add this up, around 96 cents out of every litre of petrol goes to the Government. Similarly, around 85 cents goes to the Government out of every litre of diesel. So, it’s over half, almost 60%.
If you take for example someone who drives an average of 17,000 km a year in a petrol vehicle or 24,000 km a year in a diesel vehicle, you’re looking at around €800-900 a year in taxes.
Motor tax surcharges
The Government will penalise you for not paying the full annual amount for your road tax upfront. If you pay in instalments, you’ll be charged more. It’s a mean charge, which shouldn't be allowed.
If you’re paying the D band rate for motor tax, you could pay it all in one go and be charged €447 a year. If you ask to pay in quarterly instalments because you can’t afford to pay in one go, you’ll be surcharged €57 a year. That can increase depending on the band you’re paying.
What taxes do the Government put on buying houses?
There’s VAT charged at 13.5% when purchasing new houses. If the cost before VAT is estimated to be €264-265,000, you’re then paying VAT anywhere between €30-35,000. This brings the purchase price of the house to around €300,000.
Those looking to buy will also need to pay stamp duty of 1% on the pre-VAT price, so in the previous example, you’d be paying €2,600. People are usually aware of these fees, but they might not know about other Government agency fees.
There’s a land registry fee, which is around €700-800, and to register your mortgage it’s €175. Then there are other charges as well that add around €100-200. All in all, you’ll be paying up to €40,000 in Government fees.
There’s of course the Help-to-Buy scheme, so you can get some of it back, but some of the fees seem so excessive, you’d wonder why the Government is charging people so much.
Take a look at our blog on the extra costs associated with buying a house to learn more about other fees you may incur.
Switch and save on bonkers.ie
Despite the Government announcing measures to help offset rising inflation, the price of living is still on the rise. However, there are a number of other ways that can help you to combat inflation and at bonkers.ie we want to help you put money back in your pocket.
Switching to a cheaper energy supplier is one of the easiest ways to start saving on your household bills. Head over to our energy comparison page and run a quick comparison to see how much you could save today.
For more savings tips, take a look at our blog on how to beat rising inflation and have a read of this blog for more information on Government taxes.