Families will have to sink any savings from Ireland’s first tax cut budget in seven years into imminent water charges, critics have warned.
The Government claims a €1bn package of welfare hikes, reduced income tax and a public recruitment drive signals the end of a punishing age of austerity in a country battered by a spectacular economic nosedive.
Trumpeting the turnaround from bankruptcy to one Europe’s fastest-growing economies, Finance Minister Michael Noonan said the burden would now be lifted for those worst hit by years of cutbacks.
“The road we have travelled to get to this point has been very difficult and the Irish people have made major sacrifices, but the policies pursued by this Government have worked and the recovery in the Irish economy is well under way,” he said.
But analysts, opposition parties, trade unionists and poverty campaigners says the looming water tax – which will cost householders several hundred euro a year for drinking water and washing – will offset any savings announced in the Budget.
A worker on a €70,000 salary will be €746 better off while a low-paid worker struggling to make ends meet on €15,000 a year will have just €115 more in their pockets, critics say.
Water bills will start coming through letter boxes in January, charging on average €176 for one adult, with an extra €102 for every other adult in a household.
Poverty campaigners St Vincent de Paul said any benefits from tax cuts will be wiped out by both the new utility bill and property taxes.
“While this budget has been described by Government as the first step in major a road to recovery SVP believes that it is not a recovery that is fully committed to many who are socially deprived,” a spokesman said.
Sinn Féin finance spokesman Pearse Doherty said the much-heralded recovery was only for a few.
“If the Government was serious about helping struggling families they would have abolished the water charges. Instead they chose to give a tax break to high earners,” he said. “For most people it will mean yet another year of austerity.”
Less than two years from the next general election, Mr Noonan insisted Ireland would not be returning to the boom and bust model of the past.
Among the changes he is overseeing are a phasing out of controversial tax arrangements – known as the “Double Irish” – which allows multinational companies to slash their tax bills by locating in Ireland but the 12.5% corporation tax rate is an untouchable.
And in personal taxation some of the most significant measures include:
:: Income tax top rate falls by 1% to 40% while the standard rate band moves from by €1,000 to €33,800 for individuals.
:: Universal Social Charge – The deeply unpopular tax on earnings will be altered to take 80,000 low paid workers out of the net. A new 8% rate for incomes over €70,000 and an 11% rate for self-employed income over €100,000.
:: First Time Buyers – The tax paid on the interest on savings, Dirt, will be refunded up to 2017 for people who use the money to finance deposits worth up to one fifth of the cost of their first home.
:: Water charges – An income tax relief up to a maximum of €500 will apply to each household while a €100 a year subsidy is being offered for those on household benefits packages and the free fuel allowance scheme benefiting 653,000 households.
:: Children – A €5 a month increase in child benefit from January with plans to add another €5 in 2016.
:: Elderly – A €9 week increase to the living alone allowance to benefit 180,000 older people.
:: Dole – A 25% Christmas bonus payment for social welfare recipients this year and a new Back to Work Family Dividend will be introduced allowing families to claim the €29.80 a child for one year after a parent’s return to work and half of the payment in the second year.
Among hikes to pay for the €585m measures, the price of a packet of 20 cigarettes will smash through the €10 barrier with a 40c increase from midnight.
Taxes are being frozen on alcohol, petrol and diesel and there will be no changes to motor tax or Vehicle Registration Tax.
A special levy on pension pots, introduced to fund a low 9% Vat rate for hospitality businesses is to be phased out. The 0.6% tax rate on lump sums will stop at the end of the year while a secondary 0.15% levy rate will run until the end of next year.
Analysts with Davy Stockbrokers said the combined cuts for income tax, USC, VAT and excise will on balance make little changes to household finances.
Trade union Mandate said the package will redistribute wealth from the lowest paid to the highest earners.
Mandate General Secretary John Douglas said: “To claim this is the end of austerity is disingenuous at best.”
The Unite union, which has more than 100,000 members, said it was not an end of austerity but a new phase: recovery for a few, continued squeeze for the rest.
Regional secretary Jimmy Kelly said: “It is clear that water charges are the elephant in the room of the Government’s budgetary policy.”
Unite claims 70% of workers – those on less than €32,800 a year - will see no benefit from income tax cuts and only marginally from USC cuts and those not in the tax net, earning less than €12,000 will get no relief.