We have been promised that this is the last of the austerity budgets and it is one which will have a significant impact on lower to middle income families. We knew already that the local property tax was going to be doubled in 2014 (only paid for 6 months in 2013) and that PRSI was going to be charged on unearned income from 1 January 2014 for everybody.
So what was new in Budget 2014? Lets get the bad news out of the way first, and there was plenty of that for the most vulnerable in our society – the sick, the young and the elderly. The Government have clearly targeted these areas in a bid to raise revenue.
Eligibility of the over 70’s to the Medical Card has been restricted
Prescription charges have been increased to €2.50 for medical card holders
The €850 bereavement grant has been abolished
The telephone allowance has been revoked
Job Seekers allowance for those under 25 has been reduced to just €100 per week
Maternity benefit has been reduced to a standardised €230 per week
One parent family tax credit has been replaced – Only the primary carer will now get the benefit of the credit and the increased rate band
Excise duties on a packet of cigarettes have increased by 10 cent. The price of a pint has increased by 10 cent and a bottle of wine has increased by 50 cent
By targeting the most vulnerable in society the Government have put themselves in the firing line. If reaction to previous attacks on pensioners is anything to go by then we can safely say that we haven’t heard the last of these measures. The introduction of free GP care for children aged 5 years and under will hope to compensate for some of the above.
Unfortunately this wasn’t the end of the bad news:
A major change in the DIRT rate. It has increased to 41% for all types of deposits. This is an 8% tax increase on savings. If you include PRSI of 4% onto this then the rate is 45%. It may mean that people will look for alternative investments rather than bank deposits, which is what is hoped for.
We all knew that pensions were going to be hit in Budget 2014. Thankfully the Government did not alter the tax relief on pension contributions, however it did reduce the Standard Fund Threshold from €2.3m to €2m. Also the Pension fund levy for 2014 has increased to .75% and will be .15% from 2015. The current .6% rate was only introduced as a temporary measure so it is disappointing that this has been retained, albeit in a different form.
Top Slicing Relief
This relief is granted on redundancy payments. It works by reducing the tax rate on the taxable portion of the lump sum to the average tax rate paid by the recipient for the previous 3 years. This relief will now be abolished from 1 January 2014.
However, this budget was far from doom and gloom. In fact for businesses and for the creation of employment this has been the most productive budget in recent memory. We cannot say it was perfect by any means, and employers who pay their employees sick pay will testify to this (they will not be able to recoup sickness benefit from their employees for an additional 3 days), however there are enough productive measures in this budget to make it a positive one.
No change to income tax or the USC or PRSI. Your take home pay should not change as a result of this budget
Capital Acquisitions Tax
No change to the rate or to the tax free thresholds. All current reliefs remain untouched
Capital Gains Tax
No change to the 33% rate
12.5% rate remains and is defended. However Minister Noonan states that the Finance Bill will outline measures to curtail the use of companies who are incorporated in Ireland and who are neither resident in Ireland nor in any other jurisdiction
25 Measures for Jobs and Growth
The Minister has outlined 25 positive measures which will hopefully increase growth and jobs. These measures relate primarily to the SME sector and should be largely welcomed. Some of the more positive measures can be broken down under a number of headings:
A new Capital Gains Tax roll over type relief for people who reinvest money from previous disposals into new assets used in new productive trading activities
A person who is unemployed for 15 months is exempt from income tax for 2 years if they start up their own qualifying business up to an annual earnings limit of €40,000
The Employment and Investment Incentive scheme, “better known as the EII scheme” will no longer be affected by the high earners restriction
VAT & Cashflow
The VAT threshold for the cash receipts basis of accounting will increase to €2m from 1 May 2014
The 9% VAT rate for the tourism sector will remain
Air travel tax will decrease to 0%
Positive changes to the R&D tax credit scheme will enhance the scheme for the SME sector
A Living City Initiative was introduced in Waterford and Limerick in 2012. This has now been extended to Cork among other cities. It allows for tax incentives on renovating buildings which were built prior to 1915
13.5% tax relief for qualifying expenditure on home renovation will come into effect in 2014
€10m will be invested by the Government in a large scale multifunctional event centre in Cork
CGT Retirement relief for farmers has been extended to include farmers who lease their land on a long term basis
Farmers flat rate addition has increased to 5%
7 year Capital Gains tax exemption for investing in property was due to expire in December 2013. This has now been extended to December 2014
Budget 2014 will most likely be remembered because of the perceived attack on the elderly and the youth in todays society. This is unfortunate from the Governments point of view, because as you can see from the above points there is a clear attempt by Minister Noonan to instigate growth and job creation into the economy. While individually these measures are positive, their impact will only be measured by the creation of jobs and the growth of the economy. The question remains – has Minister Noonan gone far enough with these measures to instigate growth? Only time will tell.
As ever there will be further changes in the Finance Bill and so we won’t have a clear picture of the measures until then.