What does Budget 2017 mean for you?

There are many changes in terms of income taxes and public expenditure.

Maeve McLaughlin
by Maeve McLaughlin on 11th October, 2016

This afternoon, Ministers Noonan and Donohoe announced Budget 2017 in the Dåil.

Although many of the proposed measures had been leaked in the press over the past number of days and weeks, the exact detail was not known until today. Here are some of the main points…

A reduction in Universal Social Charge rates

There were no changes to the exemption for those earning under €13,000, but there will be a reduction to the first three rates, with each going down by 0.5%. The bands and rates applicable to each will be as follows:

  • €0 to €12,012 @ 0.5%
  • €12,013 to €18,772 @ 2.5%
  • €18,773 to €70,044 @ 5%
  • €70,045 to €100,000 @ 8%

Any PAYE income in excess of €100,000 will be charged at 8%, while self-employed income in excess of €100,000 will be charged at 11%.

There has also been a change to the second band, with the upper limit rising from €18,668 to €18,772. This means that anyone working full-time on the minimum wage - which was raised by 10 cent an hour in the Budget - will remain in this bracket for USC purposes.

Tackling climate change

In his statement, Minister Noonan said that Climate change is the ‘global challenge of our generation’. He noted that work has been ongoing across Government Departments to create Ireland’s first National Mitigation Plan to transition Ireland to a low-carbon economy by 2050.

In relation to this, he confirmed that the Vehicle Registration Tax reliefs available for the purchase of hybrid electric vehicles and plug-in hybrid electric vehicles, are being extended to 31 December 2018. Electric vehicles, and electric motorcycles are being extended to 31 December 2021.

On top of this, Minister Noonan announced the following:

  • A measure to help reduce the dependence of larger vehicles on diesel, to provide that natural gas used as a vehicle fuel will be taxed at the EU minimum rate of excise for a period of 8 years;
  • A relief from carbon tax for solid fuels that include a biomass element to incentivise the development of these greener fuels;
  • Full relief from carbon tax for fuel inputs to combined heat and power plants, as these plants demonstrate the most efficient use of energy in electricity generation.

Help for first-time buyers and owner-renters

As was mooted by Minister for Housing, Planning and Local Government, Simon Coveney, back in July, help is at hand for first-time buyers.

Basically, it will take the form of an income tax rebate incentive for first time buyers who are buying new homes, or building their own.

First-time buyers will get a rebate on income tax paid over the previous four years up to 5% of the purchase price of their new home - up to a maximum of €400,000 - meaning a maximum of €20,000 of a rebate. Where new homes are valued between €400,000 and €600,000 the maximum relief (i.e. €20,000) will continue to be available.

Minister Noonan mentioned that he had discussed this with the Governor of the Central Bank of Ireland who has confirmed that this rebate will be allowable to fund deposits under the Central Bank’s mortgage lending rules. The Minister also noted that applicants must take out a mortgage of at least 80% of the purchase price.

The scheme will run until the end of 2019.

In terms of those who rent out a room in their home, the ceiling for exemption from income tax for income received from this is being increased from €12,000 to €14,000.

Increases in social welfare payments

As was widely predicted before the Budget, Minister Donohoe confirmed that the State Pension will rise by €5 per week.

In fact, all weekly social welfare payments– including the carer’s allowance, disability allowance and jobseeker’s benefit and allowance - will rise by €5 per week in line with this increase. There will also be a payment of an 85% Christmas bonus for Social Welfare recipients in 2016.

Funding for the National Broadband Plan

€15 million has been allocated to progress the procurement of the National Broadband Plan, which aims to provide high speed broadband to area of rural Ireland.

Education and childcare

Minister Donohoe announced a €458m increase in spending in education for 2017.

This will fund an extensive programme of recruitment in 2017, with an additional 2,400 teaching posts, including 900 resource teachers. There will also be an increase of €36.5 million in funding for the higher and further education sector in 2017.

In terms of childcare, Early Years funding will rise from €345m in 2016 to €465m in 2017, an increase of 35 per cent, which allows for an additional €35 million to support the provision of both universal and targeted services for the care, development and wellbeing of children and young people.

This includes the introduction of a new Single Affordable Childcare Scheme from September 2017, which will provide universal subsidies for all children aged 6 months to 3 years, as well as means-tested subsidies, based on parental income, for children between 6 months and 15 years.

The only tax increase in Budget 2017

In announcing the budget, Minister Noonan stated that ‘the only tax increase’ he is introducing is on excise charged on cigarettes. This will increase by 50 cent per pack, and there will be a pro-rated increase for other tobacco products.

What will these budgetary changes mean for your pocket?

The changes will mean something different for everyone, with the only one likely to affect all workers earning over €13,000 being the change in the USC rates.

However, the Department of Finance has released the following figures to illustrate how the changes could affect different households:

  • A single person earning the minimum wage will have an increase of €208 per year due to this budget.
  • A retired person who receives the state pension, as well as an occupational pension of €15,000 per year, will see an increase of €247 per year.
  • A single parent with one 3-year old child who works in the public sector and earns €42,000 per annum will see a €521 increase in annual net income due to this budget.
  • A married couple, one of whom is self-employed and one of whom works in the home, with an annual combined income of €50,000 and three children aged 6,8 and 10 will see an increase in annual net income of €753 per year.

Reaction so far

Reaction so far has been muted - the general opinion seems to be that, although there have been some positive moves, no-one is going to be hugely better-off as a result of this Budget.

In fact, we’ve had a look at the figures and it’s likely that many households could benefit more by switching energy provider than they will from the Budget. At the moment, dual fuel customers could save up to €358 by switching from standard tariffs to the cheapest deals on the market.

Don’t wait for the budget changes to take effect - save €358 now