Dec 11
6
Budget 2012
Following this week’s Budget announcements by both Ministers Michael Noonan and Brendan Howlin, I have put the following information together.
The decisions in this budget are difficult – but we have to make them to get Ireland working again. No government likes to make decisions like this – but we have an 18 billion euro deficit to fill.
I hope this information will be useful to you in calculating what impact the budget will have on you and your household.
DAY 1:
Address by Brendan Howlin, Minister for Public Expenditure and Reform (read here)
Dept. of Social Protection – €475 million savings
· We have delivered on the commitment in the Programme for Government not to cut primary social welfare payments. These include Jobseekers Allowance and Jobseekers Benefit for the unemployed (€188 a week)
· Child benefit rates for the first two children have been preserved at €140 a month.
o But the child benefit rate for the third child will be reduced to €148 and for the fourth and subsequent children to €160 from 2012.
o Low income groups can be better supported though other measures like Family Income Supplement. The higher 3rd and 4th child payment targeted large families not low income families.
· Payments to carers will be maintained. The half-rate carers allowance
will continue to be paid to people who are full-time carers and who are getting another welfare payment
· Older People will continue to get the State pension at current levels
· The Free Travel Scheme, Free TV Licence, the Living Alone Allowance, Over 80 Allowance and Islander Allowance will not change.
Fuel allowance will be maintained, but the the period in which it is paid is reducing from 32 to 26 weeks for all recipients. Why?
· The weekly Fuel Allowance amount and payment period have been greatly increased during the last ten years – from €6.35 per week in 2001 to €20 in 2010
· Duration of the fuel season has increased from 26 weeks in 2002, to 32 weeks in April 2009
· Between 2005 and 2011 the numbers in receipt of fuel allowance rose from 266,000 to 420,000, an increase of over 50%.
· The scheme is unsustainable, given the increase in numbers and costs and the fiscal position of the State
· The purpose of the scheme is to provide additional support for those on long-term welfare payments during the winter season which clearly does not last for 32 weeks
· Maintaining the level of the payment, while reducing the fuel season by six weeks begins to restore the core purpose of the payment as a winter fuel support
Changes to Disability Allowance
· Disability Allowance is a weekly allowance of €188 a week for people with a disability age between 16 and 66 – the minimum age is being raised to 18
· In parallel, the upper age limit for receipt of Domiciliary Care Allowance is being increased from 16 to 18 to protect the household income of such families
· The social welfare system does not generally provide benefits which encourage early school leaving – the award of Disability Allowance at age 16 creates an incentive for young people with disabilities to exit the education system prematurely. It also creates the risk of dependency on social welfare
· Instead, we are proposing to extend from 16 to 18 the payment of the Domiciliary Care Allowance which goes directly to the parents
· We pay €188 Disability Allowance per week for a single person – In Northern Ireland, the payment ranges from €109.30 to €115.80 for a single person
Health — €543 million savings
· Of the total €543 million in net savings in the Health area the vast majority, over €350m come, from non-frontline areas. This rises to nearly €500m, when the €145 million in staff costs savings are included, which will also be delivered so as to protect the frontline. These non-frontline areas are:
o measures to reduce the price of drugs (such as reference pricing and generic drugs, and reduced fees for services) to save €112 million;
o Improve the generation and collection of private income in public hospitals to save €143 million; and
o Secure 2% efficiencies in disability, mental health and childrens’ services, saving €50 million.
o Ensure efficiencies in procurement by active management and control of both price and volume of usage which will save €50 million;
· Increase in Drug Payment Scheme monthly threshold from €120 to €132, to save €12 million. This is only a 10% increase and the scheme is still heavily subsidised.
Mental Health Spend:
As promised under the Programme for Govt, €35 million has been ring fenced for the provision of mental health care in the community. This will help deliver on the Govt’s reform agenda.
€15m is also being provided for free GP care for people on the Long Term Illness scheme.
The Government has already announced that the National Paediatric Hospital will be built.
The Government is accelerating its reform programme to help offset some of the impact on frontline services:
· The Clinical Programmes lead by Dr Barry White of the HSE – such as the Productive Theatre Initiative (getting the maximum from hospital theatres), the Acute Medical Programme (improving access to hospitals by people who seek unscheduled care), the ‘money follows the patient’ initiative in Orthopaedics and the developments in Stroke Units in our hospitals, it’s expected that major savings can be achieved in the more effective use of hospital beds.
· The Special Delivery Unit, is also making significant strides. The unit is charged with improving performance in the health system and in the process reducing waiting lists. In July Minister Reilly and the SDU established a target of ensuring that no one is waiting for elective treatments for longer than twelve months. At that time the target applied to 14,000 people. The target date for achieving that outcome is the 31st of December of this year. That target is now expected to be met.
Education — €132.3 million savings
· Protecting those who are most vulnerable: there will be no reductions in the overall number of Special Needs Assistants (SNA) or Resource Teachers in this budget.
· The pupil-teacher ratio at primary level is unchanged for the 2012/13 school year.
· We will continue to provide a full programme of training and further education through SOLAS, the VECs and other educational bodies.
· We will fund important policy initiatives such as Junior Cert Reform and implementation of the Literacy and Numeracy Strategy.
· The Student Contribution will rise by €250 next year to €2,250.
o Those from a low earning background are protected — about 41% of students were exempt from paying the Student Contribution in 2011.
o The contribution of €2,250 next year will remain considerably lower than the fees of £3,465 payable in Northern Ireland, and up to £9,000 in England and Wales.
A key priority is to continue to prioritise and target available funding at schools with the most concentrated levels of educational disadvantage.
At primary level, a new staffing schedule for all DEIS Band 1 schools will be based on a general average of 1 teacher for every 22 pupils, compared to 1 teacher for every 28 pupils in mainstream schools.
All DEIS second-level schools will be given targeted support by a more favourable staffing schedule of 18.25:1.
The basic capitation reduction will apply to all schools but DEIS schools will continue to receive the enhanced DEIS grant which has not been reduced
Public service pay bill — €400 million savings
· Number employed of Public Service decrease by a further 6,000.
· Savings in respect of overtime of 10% and in allowances and premium payments of 5%.
· Public service pension: the new single public service pension scheme for new entrants (September 2011) will reduce this annual expenditure by about 35% or €1.8 billion. There will be no further cuts for ordinary public service pensioners are proposed.
Closure of Garda Stations:
- 31 Garda stations across the country will close out of a total of 703. These closures will take place throughout 2012. The areas in question will be covered by other local stations and An Garda Síochána will communicate with local communities in relation to the changes.
- Opening hours for 10 Garda stations will be reduced. New opening hours for these stations are 8am to 10pm.
- Eight other Garda stations will be formally closed which are already non-operational and will no re-open.
- Similar rationalisation has taken place in the North over the last number of years. It was reported last week that the Policing Board is considering closing a further 24 out of 83 stations.
- Funding has been maintained to the Criminal Assets Bureau and the Forensic Laboratory.
- Funding of over €40 million, which represents a modest increase of €1.4 million over 2011 expenditure levels is being made available to the Probation Service in 2012.
Re-organisation of the Defence Forces
A major re-organisation of the Defence Forces will be initiated arising from the reduction in strength of the Permanent Defence Force to 9,500 personnel. This will include a reduction in the number of Army Brigades from the current three to two.
Because the Defence Forces have downsized faster than the rest of the public service and are already 11% below the 2000 strength level, the Government have decided that there will be no further reduction below the level proposed in the Comprehensive Review of Expenditure. The strength will be maintained at 9,500 but there will be a major streamlining of the organisation. No further barrack closures are envisaged as part of this process.
DAY 2:
Address by Michael Noonan, Minister for Finance (read here)
Income tax
There are no changes in the existing rates or income tax bands. There are also no changes to existing tax credits. However, Illness Benefit will now be taxed from the first day of payment; previously the first 6 weeks (36 days) were exempt from tax.
Domicile levy
The citizenship condition for payment of the levy is being removed. This will mean that liable non-residents will not be able to avoid the levy by changing their citizenship status.
Universal Social Charge (USC)
· From 1 January, the exemption level will be raised from €4,004 to €10,036.
· This measure benefits nearly 330,000 people.
· The Revenue Commissioners will collect the USC on a cumulative basis from 2012, thereby reducing the risks of the over or underpayment of the USC, and this will offset the costs of the very positive change made for the lower paid.
PRSI
The current relief of 50% of employer PRSI for employee contributions to pension schemes has been abolished (1 January 2012).
PRSI will be expanded to cover rental, investment and other forms of income from 2013.
Value-Added Tax (VAT)
The standard rate of VAT will be increased from 21% to 23% from 1 January 2012. This only affects goods which are already liable to the 21% rate.
· 20 out of the 27 EU Member States have increased VAT in the last four years, which puts us very much in line with our European colleagues.
· Most food, children clothes, oral medicines and other goods and services will remain at the zero VAT rate.
· The 13.5 per cent rate that applies to home heating oil, residential housing, labour intensive services and general repairs and maintenance will remain the same.
· For the majority of the past twenty years, the VAT differential between the Republic and Northern Ireland has been 3½ per cent and as high as 6½ per cent as recently as 2009.
· The differential will be now 3 per cent.
DIRT (Deposit Interest Retention Tax)
DIRT will be increased from 27% to 30% for payments made annually or more frequently. DIRT will be increased from 30% to 33% for payments made less frequently than annually. Exit tax on life assurance policies and investment funds are also being increased by 3% to 30% for payments made annually or more frequently and 33% for payments made less frequently than annually. (1 January 2012)
Excise duties
Tobacco Products Tax
Excise Duty on a packet of 20 cigarettes is being increased by 25 cents (including VAT) with a pro-rata increase on other tobacco products. (From midnight on 6 December 2011)
Alcohol
No change in excise duty.
Legislation planned on low-cost alcohol
Carbon tax
The carbon tax will be increased by €5 to €20 per tonne on fossil fuels.
This means:
- 1.4c increase on Petrol
- 1.6c increase on Diesel
- €17.32 increase on Fuel Oil (to rise in May)
- €14.46 increase on Natural Gas (to rise in May)
- No Carbon Tax on solid fuels
Property taxes
Household charge
A household charge of €100 is being introduced in 2012. This charge will fund local services, in line with the requirement in the EU/IMF Programme of Financial Support for Ireland. The charge is an interim measure pending design and implementation of a full property tax in 2014.
Owners, not occupiers, are liable. The charge does not apply to social housing or housing provided by a charity. There will be a waiver for those on Mortgage Interest Supplement and for those residing in certain categories of unfinished housing estates. Provision will also be made to allow payment of the charge in instalments.
Mortgage interest relief (MIR)
· Increase interest relief to 30 per cent for first time buyers between 2004-08
· Confirming that mortgage interest relief will no longer be available after the end of 2012 and will be fully abolished from 2018.
· For those who wish to buy a home in 2012:
o First time purchaser buyers will get mortgage interest relief at a rate of 25 per cent rather than the 15 per cent; and
o Non-first time buyers will benefit from relief at 15 per cent instead of the reduced rates of 10 per cent.
Stamp duty
The current stamp duty arrangements for residential property will continue to apply with 1% on transactions up to and including €1 million and 2% thereafter.
Multiple stamp duty rates for non-residential properties (including farmland, commercial and industrial buildings) will be abolished. The current top rate of 6% will be replaced with a flat rate of 2% in respect of instruments executed after 6 December 2011. (Midnight 6 December 2011)
Section 23 reliefs – small investors
Reliefs in Section 23 type investments will continue at the present rate for investors with an annual gross income under €100,000. These small investors are regarded as being vulnerable to insolvency.
Capital Acquisitions Tax (CAT)
The current rate of 25% is being increased to 30%. This increase applies in respect of gifts or inheritances taken after 6 December 2011.
Capital Gains Tax (CGT)
The current rate of 25% is being increased to 30%. This increase applies in respect of disposals made after 6 December 2011.
Property purchased between midnight 6 December 2011 and the end of 2013 and held for at least seven years will not be liable for Capital Gains Tax for those seven years.
Motor tax rates
Motor tax rates for all categories will increase. (1 January 2011)
Motor tax for cars in band A will go up from €104 to €160, and band B goes up from €156 to €225. Band C will go up from €302 to €330, Band D – €447 to €481, Band E – €630 to €677, Band F – €1,050 to €1,129, Band G – €2,100 to €2,258.
Motor tax rates based on engine size will also increase. For example, engines with 1,001 to 1,100cc will go from €259 to €278; 1,601 to 1,700cc engines will go from €471 to €506; 2,001 to 2,100cc engines will go from €784 to €843.
Motor tax on electric vehicles will increase from €146 to €157.
Corporation tax
The 3 Year Tax Relief for Start-up Companies scheme provides relief from corporation tax on the trading income and certain gains in the first 3 years of trading. It is being extended to include companies which start up in 2012, 2013 or 2014.
