November 2012: PAYE households may have to pay over €3,000 in additional taxes next
year through a combination of increased PRSI and Universal Social Charge contributions,
reduced pension relief and a property tax, according to analysis carried about by business
advisors Grant Thornton.
In its pre-budget research, Grant Thornton reviewed a range of scenarios* to assess the impact
of expected changes, which show tax increases for families of between three to nine thousand
euros depending on salary levels and family circumstances:
Note: assumes a married couple with 2 children, second household salary of €40,000, home owners of a property worth five times
the primary earner’s salary, property tax only levied from July 2013, all income earners contribute 15% of gross income to a pension
scheme, tax relief on pension contributions drops from 41% to 20%.
Commenting on the analysis Grant Thornton Tax Partner Peter Vale said:
“There will be a lot of talk in the budget about income tax rates not being increased, but
the reality is that disposable incomes are going to take a major hit even if the headline
top rate of income tax stays at 41%. Under every scenario we have run, tax bills rise by
more than 10%. The government faces stark choices if it is to meet commitments made
to the Troika. Somewhere in the Department of Finance, officials are running numbers in
spreadsheets and every outcome is likely to be unpalatable.”
Grant Thornton’s analysis anticipates the following significant changes* next year:
An increase in the Universal Social Charge (USC) from 7% to 8%, and to 10% on
income above €100,000
An extension of employee PRSI (currently levied at 4%) to cover non-employment
income such as dividends and rents on property investments
A reduction in tax relief on pension contributions from 41% to 20%
A property tax from July 2013, levied as 0.25% of a property’s value
In addition to these changes, Grant Thornton also expects increases to motor tax rates, higher
deposit interest retention tax (DIRT), and the old reliables (cigarettes and alcohol) to be hit.
These likely changes are on top of the increases shown in Grant Thornton’s analysis.
Peter Vale continues: “Recent comments by the Minister for Social Protection Joan Burton suggest that as an
alternative to reducing tax relief for pension contributions from 41% to 20%, a cap on the
overall pension fund size may be introduced. Those nearing the end of their careers,
who have prudently built up their pensions savings, may not benefit from this alternative
approach and could potentially lose tax relief completely on future pension contributions.
When you bear in mind that practically all pension funds are subject to the new 0.6%
pension levy, the position is bleak for those looking to save for the future.”
“It is difficult to envisage a Budget next month that is not painful for everybody. With at
least €3.5bn euro being sought from expenditure savings and tax increases, we will all
be feeling considerably less well off on December 5. A big concern has to be how badly
the changes impact consumer demand in 2013, thus limiting potential for growth in the