Budget 2011: The Main Features

By Eoin Fahy , Tuesday, 7th December 2010 | 0 comments
The principal measures in Budget 2011 are listed below (see separate note and blog entry for a Budget Commentary). 
 
  • In macro terms, the deficit will fall to 9.4% of GDP, or €22bn, from this year's astronomically high level of 32% of GDP, although this year's figure is of course inflated by the cost of the bank rescue (without the bank costs, the deficit was 11.6% of GDP).  The overall package is about two-thirds expenditure cuts, and one-third tax increases, and is about twice the size of the package in the last Budget.
  • Of much interest to pension fund trustees and members, the Government has announced it will  go ahead with a scheme where Irish pension funds would have the opportunity to invest in Irish government bonds and to price their liabilities to pensioners on the basis of Irish, not German, bond yields.  This is a very technical measure but will come as extremely good news for Irish pension funds.
  • Personal income tax credits and the standard rate tax band are being cut by 10%, bringing middle-income earners into the higher rate of tax at lower income levels.For a married couple, both of whom work, this will see an increase in the tax bill of €720.  Where they earn more than €65,600 between them, the cost will rise by another €1440.
  • The two income tax rates of 20% and 41% remain unchanged.
  • The income levy and the health levy have been merged to form one “Universal Social Contribution”.  This will be payable at 7% for income in excess of €16,000 per year.  The total top marginal rate of tax and levies will therefore be 52% (income tax 41%, PRSI of 4%, and universal social charge of 7%), which is unchanged. 
  • PRSI and the new universal social charge will be payable on employee pension contributions, for the first time.  The annual earnings cap for contributions purposes will be reduced to €115k from €150k. Employer PRSI relief on contributions will be halved.  The maximum allowable pension fund on retirement is to be more than halved to €2.3m.
  • The annual imputed distribution for ARFs will rise to 5% from 3%, and this amount will be fully taxed.
  • Tax reliefs on patent income, trade union subscriptions, private rented accommodation, employer-provided childcare, farm building pollution control spending,approved share option schemes, and various other minor schemes, are to end. Artists' tax relief is to be restricted to €40,000 per year.
  • Capital allowances for 'passive' investors are to be restricted and will end in 2014.
  • Section 23 relief is to end by 2014, and is only to apply to Section 23 income from now on.
  • The air travel tax is to be cut to €3 from next March.
  • The rate of DIRT is to rise to 27% for most deposit accounts, as will the exit tax for insurance policies and investment funds.
  • In a surprise move, stamp duty on houses is to be cut to 1% for houses up to a value of €1m, and 2% above that level.  This will apply to old and new houses.
  • Threshholds for capital acquisitions tax are being cut by 20%.
  • The car scrappage scheme is to be extended to June 2011.
  • PRSI and the new social charge are to be paid on various employee share schemes.
  • Full rate PRSI will be paid by certain public servants on income in excess of €75,000.
  • Redundancy payments of more than €200,000 will be taxed at the marginal rate.
  • Pension lump sums of more than 200k will be taxed, at the standard rate (20%) up to €575,000 and at the marginal rate above that.
  • DC members are to get extra flexible options on retirement.
  • Petrol tax is to rise by four cents per litre, and diesel tax is to rise by two cents.
  • Standard social welfare payments are being cut by around €8 per week. Child benefit will be cut somewhat more, by €10 per month for the first and second child, and €20 per month for subsequent children, as the government still hasn’t found a satisfactory way of either taxing or means-testing the payment.
  • The state pension remains unchanged.
  • The employee PRSI ceiling of €75,000 will be abolished.

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