Finance (No.2) Bill 2013

Income tax

Joanne Whelan, Partner, Deloitte.

On first read, whilst this is an austerity Finance Bill, it may not have seemed to be as painful as some would have imagined, with the confirmation that there would be no change to income tax and USC rates and the pro-business and pro-job creation tone to the measures. However, others will view some of the main income tax measures (excluding the Home Renovation Scheme and Living City Initiatives) as being harsh.

The main changes are revenue raising measures with the increases in the DIRT and exit tax rates and the capping of tax relief on medical insurance premiums estimated to contribute almost €270m in a full calendar year. In contrast, the change to the Employment and Investment Incentive scheme in terms of the High Earners’ restriction is only estimated to cost €1m in a full tax year. Given the current marginal income tax rates of 52% for the vast majority of employees and 55% for other individuals, it was difficult to see how these rates could be increased further and indeed it would be welcome, though probably unlikely in the short term, to see these rates coming down. Therefore, while the Government is still trying to balance its Budget in part by increasing taxes it is likely that this will be achieved by further curtailing tax reliefs. Considering that Budget 2014 was still an austerity budget, it is relatively fair in the overall scheme of things. However, this Finance Bill and the impact of last year’s, including a full year’s Local Property Tax and the PRSI changes for employees will need to be considered together to fully assess the impact on peoples’ disposable income for 2014.

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