Cuts in income tax and USC. Increases in social welfare and healthcare funding – here's everything you need to know
- The standard rate tax band has been increased by €750. This means that an individual can now earn up to €35,300 and pay tax at the lower rate (20 per cent)
- Taxpayers will benefit from reduced USC rates. The 4.75 per cent rate of USC has been cut to 4.5 per cent. What’s more, the income threshold for paying USC at 2 per cent has been extended from €19,372 to €19,874
- All social welfare payments are increasing by €5
- VAT rates have been increased from 9 per cent to 13.5 per cent for tourism sector
- The minimum wage is rising to €9.80
- The cost of a 20 pack of cigarettes is rising by €0.50c
“The Government will fulfil our commitment to making steady and sustainable progress in reducing the income tax burden for low and middle-income earners by concentrating on increasing the level at which workers fall into the higher tax bracket.”
That was the promise made by Minister for Finance Paschal Donohoe in a recent pre-budget speech at the Ibec annual dinner.
Did the government deliver on this promise?
Here is your complete guide to Budget 2019.
A reduction in income tax for middle income earners is arguably the key take-away from today’s announcement.
Single taxpayers (without dependents or children) can now earn up to €35,300 before having to pay tax at the higher rate of 40 per cent.
This is an increase of €750 on the previous threshold (€34,500).
Minister Donohoe describe his tax changes as “responsible”, “targeted” and “affordable”.
This is the second budget in a row in which the government has tinkered with the standard rate tax band.
In an effort to prevent people moving to a higher Universal Social Charge band, the 2 per cent band of USC has been widened by €502. This rate is currently paid on income over €12,012 and under €19,372. The upper threshold will now be increased to €19,874.
What’s more, the 4.75 per cent rate of USC will be reduced to 4.5 per cent.
The weekly threshold for the higher rate of employer's PRSI will be increased from €376 to €386.
For the second budget in succession there was good news for social welfare recipients.
All social welfare payments have received a €5 per week boost (starting next March).
And, for the first time since the economic crash, the Christmas bonus has been restored to a double payment.
Meanwhile, it was a difficult day for the tourism industry.
VAT rates for businesses in this sector – such as restaurants and hotels – has been increased from 9 per cent to 13.5 per cent.
This rate was originally cut from 13.5 per cent to 9 per cent by former Finance Minister Michael Noonan at the height of the jobs crisis seven years ago. The sector has boomed since then with an estimated 45,000 extra staff.
This increase is expected to yield €560m for the government.
There was no such VAT increase for the sporting or newspaper industries. In fact, there was a reduction, from 23 per cent to 9 per cent, in the VAT rate for electronic publications. "This will assist national and regional newspapers to remain competitive and meet the challenges of the modern media landscape," said Minister Donohoe.
As outlined in the recent Taxback.com Taxpayer Sentiment Survey, the majority of Irish taxpayers indicated that housing and homelessness should be the government’s number 1 priority in Budget 2019.
Indeed Mr Donohoe said the government had much work to do in order to reduce levels of homelessness, to find permanent solutions for those in temporary and emergency accommodation and to improve affordability for those on low and middle incomes.
Their answer? The government has allocated a further €2.3bn to the housing programme for next year.
Of this, €1.25bn has been set aside for the delivery of 10,000 new social homes in 2019.
Housing Assistance Payment (HAP)
Furthermore, an additional €121m in funding has been set aside for the Housing Assistance Payment (HAP). HAP is a form of social housing support provided by all local authorities. The minister said that he anticipates this additional funding will provide an additional 16,760 new tenancies in 2019.
In a bid to tackle homelessness, €30 million is being provided next year for relevant services, bringing the total allocation for such supports to €146 million in 2019.
The minister also allocated €60 million extra in capital funding in 2018, much of which will be to fund additional emergency accommodation.
Regarding the rental sector, the minister announced that the full removal of the restriction on the amount of interest that may be deducted by landlords in respect of loans used to purchase, improve or repair their residential property will be brought forward.
Originally the rate was due to be 100 per cent by 2021 but will now be effective from 1 January 2019.
Spending on health is already at “record levels” said Minister Donohoe as he began the health section of the announcement.
In addition to the record levels of spending, the government will provide a further increase of €1.05bn in Health funding for 2019. This brings the total health budget to €17bn.
Further, an additional €84m will be provided for mental health services in 2019, bringing the total available funding to €1bn. This represents an increase of 9 per cent.
Also included in the announcement:
- €25 increase in the weekly income threshold for GP Visit cards
- €0.50 reduction in prescription charges from €2.00 to €1.50 for all medical card holders over the age of 70
- €10 reduction in the monthly Drugs Payment Scheme threshold from €134 to €12
- Funding for the National Treatment Purchase Fund (NTPF) will increase by €20m to €75m in 2019
There were a number of developments for families in the budget announcement.
"To support working families and to ensure that work pays, next March I will increase the earnings disregard for the One Parent Family Payment and introduce a maintenance disregard for the Working Family Payment,” said Minister Donohoe.
In addition, a new paid parental leave scheme will be introduced in November 2019 to provide two extra weeks' leave to every parent of a child in their first year. The government also intends to increase this to seven weeks in the future.
Funding for early learning and childcare will increase by just under €90m to €574m.
Income thresholds for the Affordable Childcare Scheme will also increase next year.
Minister Donohoe said that, in net terms, the base income threshold is being raised from €22,700 to €26,000, and the maximum income threshold will go from €47,500 to €60,000.
The multiple child deduction will increase from €3,800 to €4,300.
There were also increases to the Qualified Child Payment of €2.20 per week in respect of under 12s and €5.20 per week in respect of over 12s, as well as a €25 increase in both Back to School Clothing and Footwear Allowance rates.
Finally, the Department of Children and Youth Affairs will receive an additional €127m in funding. Meanwhile, funding for Tusla – the child and family agency - will increase by over €30m (to a total of €786m).
Home Carer Credit
Today in Ireland there are 80,000 families where one spouse works primarily in the home to care for children or other dependants. These households will benefit from an increase to the Home Carer Credit. The credit has been boosted by €300, bringing the value of the credit to €1,500 per year.
2019 will see an additional €10.8bn dedicated to the Department of Education and Skills. This represents a 6.7 per cent increase on last year and allows for approximately 1,300 more posts in schools in 2019.
There is also an additional €196m available for capital expenditure in education in 2019. This will support the creation of up to 18,000 additional permanent school places and 5,000 replacement places, and provide €150m for investment in Higher Education, Further Education and Training, and Research.
Mr Donohoe also announced an additional €1.8bn in order to support children with special educational needs. This will allow for up to an additional 950 Special Needs Assistants to be recruited in 2019 - bringing the total to over 15,900.
There was good news too for the self-employed.
For a second year in a row, the government has used the budget as an opportunity to address discrepancies between those who pay tax in the PAYE system and those who are self-employed.
For starters the Earned Income Tax Credit for the self-employed has been increased by €200 from €1,150 to €1,350.
“I recognise that 2018 was a very difficult year for our farming community,” said Mr Donohoe in his budget speech.
In response, the government has allocated an additional €57m of current expenditure to agriculture in 2019.
€60 million in current and capital Brexit related supports will also be provided to improve resilience in the farm sector.
A number of changes were announced for this area.
Gardaí: The budget of An Garda Síochána will be increased by €60 million – allowing for the recruitment of up to 800 Gardaí.
Justice: An additional €60 million current expenditure will be available to the broader justice sector.
This will be used to:
- Provide additional asylum accommodation
- Widen the Magdalen Scheme
- Fund reforms within the Department of Justice and Equality and the Courts Service
- Address pressures on Criminal Legal Aid and in Prisons
- Respond to the demands faced by the Office of the Data Protection Commissioner in its EU-wide role
Defence: €29 million has been set aside for additional major investment projects for 2019 to fund a programme of equipment replacement and infrastructural development across Army, Air Corps and Naval Service.
1: An additional €1.26bn in capital expenditure is being allocated over 2018 to 2021 to the Department of Transport, Tourism and Sport. €286m of this will be made available next year to facilitate investment in new transport infrastructure
2: An additional €40m has been set aside for pavement repair and rehabilitation works on regional and local roads
3: An additional €4.5m will be directed towards for regional initiatives such as Ireland's Hidden Heartlands and the Wild Atlantic Way, and nearly €10m for the further development of greenways
4: With regard to sport, the government will provide €126m in budget across a range initiatives
An Taoiseach Leo Varadkar described Budget 2019 as “balanced” and “Brexit proof”.
“We’ll also establish a rainy day fund which we’ll be able to dip into if we have a difficult Brexit.
“If we do have to borrow as a result of a difficult Brexit, we’ll have the capacity to do so.”
And indeed the government did establish a new Rainy Day Fund to increase the state's resilience to larger economic shocks. €1.5bn has been set aside for the fund and additional annual contributions of €500m will be made from 2019.
During his budget speech, Minister Donohoe confirmed that the possibility of a no-deal Brexit influenced his decision.
The minister allocated funding of €950m to the Department of Business, Enterprise and Innovation (up 9 per cent). The minister highlighted that SMEs provide most of Ireland’s employment and government support for this sector is “crucial in light of Brexit”.
Minister Donohoe also announced the launch of a Future Growth Loan Scheme for SMEs and the agriculture and food sector. He says the government will bring new legislation to implement the scheme, and says it will provide up to €300m.
The minister also announced funding of €110m for Brexit measures across a number of departments, including funding for essential customs requirements and a range of other targeted measures. There will also be increased funding for the peace programme.
1 - The minimum wage is going up €0.25c to €9.80 per hour
2- The government announced an increase in the betting duty on bets placed by customers in the
• from 1 per cent to 2 per cent for all bookmakers and
• from 15 per cent to 25 per cent on the commission earned by betting Intermediaries
Coming into action from 1 January 2019, the government anticipates that these measures will raise an additional €40 million in 2019 and €52 million in a full year
3 - The government also announced a €10,000 increase (from €310,000 to €320,000) in the threshold for Capital Acquisitions Tax. This applies to children inheriting from their parents
4 - The price of a pack of 20 cigarettes has risen by €0.50c. There will also be pro-rata increases on other tobacco products. The price of cigarettes in the most popular price category to €12.70. There is also an increase in the Minimum Excise Duty on tobacco products so that all cigarettes sold below €11 will have the same excise applied as cigarettes sold at €11
5 - There was no change to Ireland’s longstanding 12.5 per cent corporate tax rate. However, a new Anti-Tax Avoidance Directive (ATAD) compliant ‘Exit Tax’ will be launched. The tax will apply at a rate of 12.5 per cent on any unrealised gains arising where a company migrates or transfers assets offshore, such that they leave the scope of Irish taxation
6 - An additional €36m in funding (€15m in current and €21m in capital) is being allocated to the Department of Culture, Heritage and the Gaeltacht
7 - Finally, despite fevered speculation in the lead up, Budget 2019 did not include the introduction of a ‘Carbon Tax’.