Jill Kerby

ENDING THE LEVIES COULD GIVE BUDGET RELIEF FOR LOW EARNERS

Newspaper reports suggest that the Minister for Finance is going to ease up on the tax we pay when he delivers the 2015 Budget in October, most likely by raising the income point at which workers start paying the marginal rate of income tax.

Currently, anyone who earns over €32,800 jumps from paying 20% tax, 7% USC and 4% PRSI (or 31% combined tax and social insurance) to a 52% combined marginal rate:  41% tax plus USC and insurance.

The problem with adjusting tax bands – say by raising the entry point to €40,000, is that it can eat up a large amount of money and it benefits not just lower earners, letting them keep more of their income, but also middle and especially higher earners. Opposition parties on the left (who are snapping at the coalition’s heels) and social policy campaigners, favour a third income tax, wealth taxes and higher PRSI for those earners (mainly people earning in excess of €80,000-€100,000.) They say this extra tax could then be transferred to lower earners in the form of higher benefits and tax credits, especially child support measures.)

Since double earning couples can easily fall into the €80,000 - €100,000 joint income bracket – the increasingly ‘squeezed middle’ who face bigger property taxes in 2016 – higher income and wealth taxes are unlikely.

But with income tax returns already nearly €600 million over target for 2014, the Minister would appear to have more wriggle room than when the tax surplus was expected to be lower.

One suggestion that has been made – which doesn’t have any impact on income tax and could be targetted at lower earners, is to ease up on the raft of levies, those sneaky taxes that the government has been indiscriminately imposing since 2009.

The Pension Levy

The levies come in all shapes and sizes. The second biggest earner (after USC) is the pension levy. At 0.75% of the value of the cash value of the fund, this levy does not affect a person’s disposable income as the money cannot be claimed until retirement. But it will raise about c€675 million this year from the c€90 billion in private pension funds and it applies to every pension at the same rate, no matter if your fund is worth just €20,000 or €200,000.

Insurance Levies

The insurance levies are another big earner for the government. Every motor, home, personal liability, payment protection, travel and even pet insurance amounts to 5% of every premium. (The levy mostly pays for the bailing out of failed insurers, the PMPA, and more recently Quinn Insurance.) The 2% Quinn levy alone will raise about €65 million a year with the total take amounting to €150 million. The 1% life assurance levy applies to term insurance, mortgage protection, income protection, serious illness cover. Together the insurance levies are worth about €300 million.

Electricity Levy

Another levy that went up again in July and that affects every household, is the Public Service Obligation Levy (PSO) on electricity bills. For 2014/15 the PSO will amount to an average payment of €64.37 per customer, regardless of income. The levy which was introduced three years ago and will raise over €335 million the state.  

Health Levy

Few people earning below €32,800 would necessarily have private health insurance but many retired couples, whose incomes under €36,000 are already income exempt do carry this insurance. The health levy now makes up €399 of every adult policy. (The child levy is €125.) 

Even the plastic carry bag levy of 22 cent brings in about €15 million a year.

Universal Social Charge

The biggest levy of all, of course, is the universal social charge itself.

Ranging from 4% on incomes from €10,036 to €16,016; 7% above €16,016 and 10% on self-employed income in excess of €100,000, the levy is charged on gross earnings, that is, before any tax credits, pension contributions or other tax deductible payments.

USC will account for over €4 billion of revenue for the Exchequer, half of which is raised from earners on the average industrial wage of c€36,000.

While successive governments have each resisted means testing, the scatter-gun effect of the levies has taken its toll and raising the income ceiling on the payment of USC, and exempting people earning at the standard tax rate from the electricity levy and insurance levies would put money back in just about everyone’s pockets.

Someone earning €36,000 a year on which the 7% USC is levied, pays car and home insurance worth €700; life insurance, mortgage protection and pension contributions that total €1,000 a year, an average electricity bill and who buys just two plastic bags a month, will pay a whopping €2,634 in levies alone. That doesn’t include any pension fund levy.

These levies were brought in with little fanfare, publicity or opposition.  They could be rolled back the same way…starting next October.

If you have a personal finance question for Jill, please email her at jill@jillkerby.ie or write to her c/o this paper.