First income tax hike in 25 years

THE first income tax hike in a quarter of a century will see everyone pay more taxes.

A 1% tax levy will be imposed on all personal incomes, rising to 2% on earnings more than €100,000.

The levy marks the first increase in Irish income tax since 1984.

While the income tax levy will raise close to €1.2 billion funds for the Government, it may further dampen an economy where retail sales are tumbling and consumer confidence is close to a record low, according to analysts.

Brian Lenihan said he will keep this levy under review but the changes mean everyone will pay more tax, says the Irish Taxation Institute (ITI).

ITI chief executive Mark Redmond said: “We will need more time to see just how hard these changes will hit our pockets. There is no doubt however that we have seen a major shift in tax policy.

“From the new levy, to increased third level fees, to medical expenses everyone will make a contribution.

“More tax will be hoovered up under all the tax headings.”

But Davy chief economist, Rossa White said the tax hikes could have been much worse.

“It’s not too radical actually. I thought it would be a lot worse. They haven’t hit the economy too much harder.”

Brian McDonald, tax partner with consultants Deloitte said the government may have to consider keeping the levy for at least two years in order for it to have any significant impact.

“The problem with these type of levies is that sometimes they come in and they are left there,” he said.

“However, it allowed him [Mr Lenihan] to be relatively lenient with a lot of other tax measures.”

Taxation partner with Russell Brennan Keane, Mairead O’Grady said the income levy was the most disappointing part of the budget as it affects all, including the individuals on lower incomes.

Also the country’s largest union SIPTU said the 1% levy would inflict further hardship on middle to lower earners.

SIPTU general president Jack O’Connor said: “The principle applied should have been to ensure that those who benefited most from the Celtic Tiger should have paid the most.

“This levy should have had a threshold and been graduated to ensure that no one on average industrial earnings, or less, should have had to pay anything.”

Disappointment was expressed from employers’ group IBEC because the government opted to raise taxes rather than cut public spending.

“Business recognises the need to take corrective measures to stabilise our public finances,” said IBEC director general Turlough O’Sullivan.

“Nevertheless, in the minister’s efforts to achieve this, IBEC would have preferred a greater emphasis on cutting current expenditure rather than on increasing taxation.”

The changes announced in yesterday’s budget will be watched closely by the British government which has already ruled out immediate tax rises or spending restraint, saying now is not the time to take money out of the economy.

However, it has hinted measures will ultimately be needed to reduce the deficit.

Also yesterday the government announced that payment card stamp duty is to be reduced by half for combined debit and ATM Cards, from €10 to €5 and the tax on cheques is to be increased from 0.30c to 0.50c.

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