BUDGET 2011 – THE FORECAST

While every household will feel a severe pinch on Tuesday, those at both ends of the earnings spectrum will experience blunt force trauma, according to Susan Lynch, a director of Ernst & Young’s personal tax services division writes in The Sunday Business Post.

“At the higher end of the scale, the proposed abolition of tax reliefs and a reduction in the rate of tax relief for pension contributions will have a significant effect for high earners,” she said. “The increase in the tax burden for lower earners is expected to be achieved by lowering the level at which workers start to pay tax, and lowering the level at which taxpayers move from the 20% standard rate to the higher 41% rate.”

Lynch opines that while the changes to the tax system may appear unfair to those on lower incomes, “it is clearly unsustainable that 45% of workers pay no income tax at all and that only 13% of taxpayers pay tax at the higher 41% rate”.

“This has left an unfair burden on those with relatively high earnings who suffer the highest rates of tax, income levy and health levy, but have not been sheltering their income through various reliefs,” she said. “These taxpayers were, arguably, the worst hit by recent budgets, which introduced the income levy which applies at rates up to 6% and doubled the health levy to 5% for higher earnings.

“The taxpayers have an effective marginal tax rate of 52% if they are employees and 55% if they are self-employed. “

Meanwhile, The Sunday Tribune reports the government is planning a €250,000 salary cap across the public service in this week’s Budget and is seeking to extend this to the semi-state sector. It believes it can meet any likely legal challenges forthcoming as a result of the proposal.

The newspaper points out this would have a dramatic detrimental impact on the likes of the ESB’s Padraig McManus, whose package was worth €750,000 last year and the boss of Coillte, David Gunning, who received €417,000. RTE high-earners could also be affected.

And it would appear the turkeys are at least partially voting for Christmas. Politicians’ pay is likely to be reduced by between 5-10% and there will be further cuts to expenses.

GPs who treat medical-card patients can also expect to see a reduction in fees paid by government and barristers too will be forced to accept less for state work.

Other expected measures, according to The Sunday Tribune, include:

• A 5% cut in all social welfare rates – except the state pension – resulting in a €10 a week reduction in unemployment benefit
• A €10-a-month cut in child benefit to €140 a month and the ending of the extra €37 a month premium paid from the third child onwards
• A 10% cut in tax credits and bands
• A major reduction in, but not the abolition of, the €10 travel tax
• The ending of PRSI and health levy relief on pension contributions

Government ministers would have been choking on their eggs Benedict had they picked up The Sunday Times first, which says they are facing pay cuts of €20,000 a year and in future public sector salaries would be capped at between €200,000 and €220,000.

Mind you, considering how long those voting for these measures are likely to be around to experience such ‘austerity’, it could be considered the proverbial sting in the tail from a dying wasp for those coming after them.