There's no shelter from Minister Lenihan's tax measures today. The Income Levy, the Health Contribution and the PRSI ceiling adjustments are among the forms of tax charge least susceptible to any form of allowance or relief. Taken together, over the remaining eight months of the year, they are expected to bring in an additional €1.322bn.
This is a significant amount of money, predicated on significant incomes. There must be a concern for Government that, harsh as the increases are, the yield might not be realised. Pay cuts, as well as job losses, are the order of the day which will compromise the anticipated amounts collected. Perhaps even more significant is the performance of the self employed sector, which accounts for about 20% of the income tax yield. The likely outturn here will not be known properly until next November.
Now that we know the picture for the rest of 2009, what of the future? According to the Minister -
"In 2010, we will seek up to an additional €1.75 billion from taxation. In 2011, the target will be to raise up to an additional €1.5 billion. Options to raise this may include the taxation of Child Benefit, the introduction of a Carbon Tax, a form of property tax and significant further base broadening through the elimination of unnecessary reliefs and a review of all areas of tax exempt incomes."
Again, €1.75bn and €1.5bn are significant sums. To put these into context however, all the tax increases introduced today would (according to the official figures) bring in €3.621bn. So we can expect more of the same to be announced in early December 2009 for the 2010 Budget, but only half as tough! And the same again twelve months later.
Context is important for the Department of Finance as well. Part of the Budget documentation includes tables of effective tax rates for various categories of earners in recent years. Those married with one income might have to go back as far as 2000 to see comparable overall levels of tax, though inflation would also have had a bearing. We all did best apparently in 2008, and perhaps this is the sharpest source of the pain - the jump in taxation from last year to this.
There's no particular indication in the Budget documentation as to how taxes will be approached in 2010. The report of the Commission on Taxation will clearly have a bearing, and they will be "examining various aspects of pension tax treatment including the treatment of lump sums" which the Minister expects to be dealing with in the 2010 Budget next December. Nor is there any indication that the current three phase system of personal taxation - Income Tax, then PRSI and Health Contribution, and then the Income Levy which to all intents and purposes are standalone charges - will be homogenised into a single system.
The uncertainty both in the business community and among consumers has been a huge factor in the recent economic downturn. Most people realised that the country could not sustain the current levels of public expenditure with the taxes being collected, and that additional taxes would have to be raised. It seems that Income Tax is the only show in town at present.
The Minister re-affirmed his commitment to preserving the 12.5% rate of Corporation Tax. He has raised Capital Taxes - CGT and CAT to 25% and it is noteworthy how little he expects these increases to yield. He anticipates €15m for each additional percentage point from CGT, which suggests assessable gains of just €1.5bn in 2009. In 2007, the TAX was twice that amount.
A property tax remains on the Minister's agenda, but it's fair to point out that the restriction on interest relief on rented residential property to 75% of the interest paid is, in effect, just such a property tax. The last time this interest relief was restricted, back in 1998, the relief was abolished in full for new borrowings - old borrowings were unaffected. The new 75% restriction applies to all property.
Excise was treated with a light hand. The price of Auto Diesel will be closer to the price of petrol following the 5 cent increase per litre. Tobacco has increased, but not by habit changing amounts. Perhaps the habit the Minister did not want to change was the habit of buying cigarettes in shops, duty fully paid.
While Financial Resolutions have been published to give effect to immediate changes such as excise changes and changes to the capital taxes increases, we are promised a Finance Act to deal with the elimination of Capital Allowances for private hospitals and nursing homes. This Finance Act will also contain details of a new tax relief on capital expenditure incurred in the acquisition of Intellectual Property. If the relief is effective, it will be very welcome, not least because it is one of a tiny number of reliefs in what was an overwhelmingly tax raising Budget.