Old reliables and tax reliefs to hit consumers

CONSUMERS will feel the pinch after tomorrow’s budget with hikes expected on the “old reliables” and the removal of certain tax reliefs.

However, the Government is not expected to increase the VAT rate until 2013 when it will be hiked to 22% and, further, to 23% in 2014. These changes will bring in an estimated €620 million.

Smokers and drinkers can, however, expect some increases on the “old reliables” with the Government already saying a number of changes will be made to excise duties and licences in 2011 to the value of €110m.

The Government also announced a review of items currently zero-rated for VAT and this could result in the tax being applied to food and children’s clothes.

Tax partner with Ernst and Young, Jarlath O’Keefe, said it is surprising the VAT rate is not being increased in 2011, but added an increase, however small, in the current climate may reduce consumer spending.

Smokers’ lobby group Forest Éireann has called for a reduction of €1 on a packet of 20 cigarettes which it said would help to counteract the sale of illicit tobacco and protect “the weakest in society” including children, the elderly and the unemployed.

“This would not only encourage those who choose to smoke to purchase their tobacco via legal channels, it would also help maximise revenue to the Exchequer,” said spokesman John Mallon.

Homeowners had feared the budget and had anticipated the introduction of a property tax. But it is expected a new fixed tax of €100 will not be brought in until 2012, which will double the following year for the average property taxpayer.

Director of commercial operations at Savills, Peter O’Meara, said the budget will provide clarity for the market and crystallise what the parameters are going to be for the immediate future and eliminate the uncertainty in people’s mindset.

It is also expected that the Government will announce that people will no longer be able to claim relief on trade union subscriptions and, eventually, on rent.

This will mean an annual loss in taxback claims of up to €500 a year per person.

Solicitor with Astons, Barry Kennelly, said a number of other specific tax reliefs are to be abolished, for example, the BIK exemption on employer-related childcare and the tax exemption on royalty payments.

“The Commission on Taxation report had made some suggestions regarding the restriction of reliefs on the transfer of family businesses and farms that may also be introduced in the budget,” he said.

Tax specialist with Taxback.com Darren Byrne said: “Budget 2011 is set to be one of the harshest the country has seen in many years and it will undoubtedly have a very real knock-on effect on consumers.”