Beginning of the end for austerity

The next three budgets will deliver an easing of crippling taxes on the "squeezed middle", according to Finance Minister Michael Noonan, who heralded the beginning of the end of austerity with a €1bn budget spree.

Mr Noonan said the burden would begin to be lifted for those worst hit by seven years of cutbacks, during which over €30bn was taken out of the economy.

Critics claimed that what the Government gave with one hand it was effectively taking away with the other through the looming water charges.

Announcing the package of spending increases and tax cuts to the Dáil, Mr Noonan said: “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.”

With a reduction in the top rate of income tax, he said the measures were the “first instalment” of a three-year plan to change the personal tax system. It will be directed at the “coping classes” — families earning between €30,000 and €70,000.

“Although we can’t announce the individual items for next year — and hopefully, if we win the election, the year after that — the mix of policy levers will be something similar and the objectives will be the same: To target the squeezed middle and to be fair to the people at the bottom,” said Mr Noonan.

The Universal Social Charge — which was introduced eight years ago — is here to stay. Mr Noonan said there were “no plans” to integrate the charge into income tax. However, in the next three years, “there will be more people excluded from the bottom and the rates at the bottom will vary”.

Under the changes announced yesterday, about 80,000 low earners will be taken out of the USC, with the entry point at which it is charged rising from €10,000 to €12,000.

Income tax changes will see a single-income, two-child family on a salary of €35,000 per annum better off by €294 a year — a rise of 0.8% in their income.

A similar family with a salary of €70,000 will be €776 better off, amounting to a 1.5% increase — double that of the lower earner.

Fianna Fáil said the Coalition was using the budget to buy votes by disproportionately putting money back in the pockets of the higher paid.

Mr Noonan said it was “codology” to suggest that better-off people would disproportionately benefit.

Sinn Féin said the tax cuts were “pathetically inadequate” compared to the water charges that families will have to pay — which are expected to amount to around €270 for a family with two children.

It was also claimed a €100 allowance to help long-term unemployed, carers, pensioners, and people with disabilities will not be enough.

Alone, which works with older people living in deprivation, said: “Despite the €100 allowance, older people who survive solely on the State pension will still have to pay for water with no increase to their income. This will be a real struggle for older people.”

St Vincent de Paul said any benefits from tax cuts will be wiped out by water charges and property taxes.

Trade union Unite said it was not an end of austerity but a new phase — recovery for a few, continued squeeze for the rest.

It said 70% of workers — those on less than €32,800 a year — will see no benefit from income tax cuts and only marginally benefit from changes to the USC.