Extra 32,000 low-income workers to avoid tax

NEXT year an extra 32,000 low-income workers will no longer have to pay tax.

This has happened because of an increase in the personal tax credit by €70 a year for a single person and €140 for a married couple.

It means somebody will have to earn more than €18,300 before their wages are touched by the taxman and, altogether, 878,000 people will escape an continuing relationship with the Revenue Commissioners.

In addition, an unmarried worker will have to earn €35,400 a year before they start paying tax at the 40% income bracket — €1,400 more than the current limit.

And in the case of a married person who is the sole breadwinner, they will have to pull in €44,400 a year before they start to pay PAYE at the higher rate.

These were the significant changes made to the income tax system in an otherwise modest budget for average PAYE workers.

Typically, a single person earning €18,300 a year will pay €140 less tax next year and a person earning €40,000 can shave €500 off their income tax liability.

Married couples will benefit to a greater extent because of the additional tax credits but in the same proportions to single people. In the upper echelons, a self-employed person earning €120,000 a year will pay €400 less in tax and will be largely unaffected by minor changes to PRSI and the health levy.

Surprisingly, there were very little alterations to PRSI or the health levy, which has drawn criticism from business groups who claim small employers will not benefit and are not being encouraged to expand.

While Brian Cowen had always ruled out tax increases to cover the budget deficit, economists had pleaded with him to risk lowering taxes and use the extra cash to stimulate consumer confidence.

He ignored this, but bought a little time for himself by looking forward and promising as the economy turns around he will be more generous. In doing so he stressed the overall cost of yesterday’s changes was still €432 million in 2008.

However, for the moment he has sought to ease the burden on low-income earners with cosmetic changes in other areas.

“I will take a positive step down the road by presenting to the house the first of five installments in our income tax agenda,” he said. This year his policy was backed up by a report released simultaneously examining the impact the tax reforms will have on poverty.

This estimated the changes will direct 54% of the tax benefits to poorer people, including elderly people and carers. This was reflected in an increase in the home carers’ tax credit by 17% and the old-age credit was lifted by €100 to €650.

The allowance for parents with a disabled child was raised by 22%. He also announced smaller improvements for widowed partners and widowed parents.

Finally, trade union members can write off €350 from their tax bill next year — a rise of €50.