Budget 2011: Questions and answers

What does the Budget mean for you? (Answers provided by tax experts BKR International firm Ormsby & Rhodes).

1. Who is going to be hit hardest by Budget 2011?

Social welfare claimants as well as the self-employed and PAYE workers, through income tax and PRSI changes. Landlords will also be hit through the overhaul of property-related reliefs. Some on lower levels of pay will now have to pay tax.

2. How much is the average PAYE worker going to lose in the new income tax regime?

The average industrial wage in Ireland in 2010 is €36,000. After the Budget overhaul, their take home pay will be slashed by €1,392 a year or €26.77 a week.

3. What sectors of society will be happiest with the Budget and why?

Old age pensioners will be relieved their state pension has avoided the axe. The wealthy elite will also be happy: What they have, they hold.

4. What is the most significant budgetary reform announced today?

Proposed changes to PRSI and income levies, which are to be scrapped and replaced with a single universal social contribution. Workers on as low as €10,000 a year will be €200 less well off. Also, the abolition of property reliefs which fuelled the catastrophic property bubble.

5. How likely are the tax reforms to reinvigorate the economy?

Tax rarely invigorates the economy, but there is a golden opportunity in this crisis to widen the narrow tax base. There is very little taken from capital and wealth taxes in Ireland – which affect the richest – and reform here could reap revenue.

6. Will the minimum wage cuts have the much-feared severe impact on low paid workers or boost employment?

The new reduced minimum wage should apply mostly to newly-employed workers who don‘t have existing contracts. Around 50,000 workers are already on the minimum wage. Finance Minister Brian Lenihan said they will not have to pay tax.

7. What, if any, ’untouchables’ in Government spending and tax could have been looked at?

The Government missed an opportunity to boost taxes on the wealthy elite. There has been no real change in capital gains tax with only minor changes to the threshold of capital acquisitions tax. Changes could have raised billions of euro.

8. Are the Government’s tax targets feasible/achievable?

They will be difficult to achieve. They assume the economy will grow at twice the EU average. This is hard to imagine as spending cuts and tax hikes will drive prices down.

9. What in layman’s terms are the effects of changes to tax relief on pensions?

It is going to make funding private pensions much more expensive. High earners who paid the maximum contribution – and got 41% relief – will be hardest hit. Company pensions are now more attractive and may become more popular.

10. Should the Government have opted for a VAT increase next year rather than delay the inevitable?

No. An increase in VAT rate would hit an already struggling retail sector and those on lower incomes more severely.

11. Why is corporation tax considered a sacred cow and would a modest 2.5% increase have raised enough money to avoid some of the pain being felt by the average worker?

A 2.5% rise would raise €500m. Three quarters of the money raised from the tax comes from multinationals and large corporations. They employ 100,000 people here and some argue they could pull out over any hike.