Darach Honan: Six talking points from Budget 2019

BUDGET 2019 was predicted to be the budget that would finally relieve the “squeezed middle”.
However, Budget 2019 spread the butter thinly and evenly.
The average person will come home with €5 more a week in their pocket, just like last year. Was this a palatable budget, sure, did it specifically target the squeezed
middle, no. So, what did change?
Income Tax and Universal Social Charge (USC)
The standard income tax band threshold was increased by €750, just like last year. This means that you will pay the higher income tax rate of 40% on all income over €35,300. The Government also continued the trend of reducing the
USC. The following changes were made to USC:
l Widening the band to which the USC 2% rate applies from €19,372 to €19,874
l Reducing the 4.75% USC rate to 4.5%
As you may have gathered from last week’s article USC is a real bugbear of mine. If USC was classed as it should be, income tax, then people would be able to get relief on this when contributing to their pensions or protection policies.
USC was introduced as a temporary measure in 2011, it is only now starting to be chipped away at. While it is going in the right direction, it is moving at a snail’s pace and as a result the “squeezed middle” remain very much squeezed. As you can see from the example below, the changes, which will cost the Government
€284m, do not specifically target low to middle income earners and in fact higher income earners will see a bigger increase in their pay cheques.
Social Welfare Payments
Pascal Donohue announced that all weekly social welfare payments will be increased by €5 per week. This comes into effect next March and will impact people in receipt of the Jobseeker’s Allowance,
Disability Allowance, Carer’s Allowance and the State Pension. The Christmas bonus has been restored to a double payment for the first time since the crash.
In addition, qualified child payment paid to parents on social welfare will increase by €5.20 per week (over 12s) and €2.20 per week (under 12s). There will be a €25 increase in back-to-school clothing and footwear allowance rate.
Social welfare recipients are a group that has benefitted so much that Pascal rebranded it as a “caring budget” . Many low to middle income earners will feel it was their turn for a break and that more care should have been afforded to them.
VAT
Many in Clare will not welcome the increased rate of VAT in the tourism and hospitality sector. This rate is set to increase from 9% to 13.5% from January 2019 with the Government hoping this will generate tax revenue of €466m. This 9% rate was introduced in 2012 when there was 100,000 people employed in the
hotel sector in rural Ireland. Since then, employment in this sector has increased to 165,000. Clare draws large numbers of tourists every year and one would hope that this VAT increase will not negatively affect the tourism trade here.
Capital Acquisitions Tax
The CAT Group A tax-free threshold has been increased by €10,000 to €320,000. Group A broadly refers to a parent passing assets on directly to a child. While Fine Gael had expressed a desire to return the thresholds to their former glory an increase was not expected
in this budget. It appears by including this minimal increase they may be just testing the waters for future increases.
Rainy Day Fund
With the impact of Brexit on the Irish economy yet unknown, the Government has included a rainy-day fund. Donohue has targeted building a €1.5bn rainy day fund over the next three year by adding €500m annually. It is encouraging that the Government is looking past our immediate future and planning for a little down the road with regards to the rainy-day fund. It would be advisable for them to take a similar approach towards the ‘pension time bomb’ which is coming.
Missed Opportunity
The bigger surprises in the Budget came from what was left out as opposed to what was included. The importance of addressing the effect we are having on our environment was hammered home by the UN report on climate change released on Monday. As a result, we were expecting
an increase in carbon tax. Perhaps Pascal Donohue has been overly influenced by Kerry man Danny Healy Rae when he said in the Dail that only God controls the weather.
For anyone interested in knowing more, I am here to answer all your questions. If there is something I can help you with, please get in touch. Where an opinion is expressed, it is the personal opinion of the author only and not of the Clare Echo.
Darach@ipsfa.ie
087-1277155