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NEVER MIND THOSE pesky experts at think tanks worrying about things like ‘sustainability’ – this was the Budget of tax cuts, baby.
With corporate taxes flowing in, various measures in last week’s Budget aimed to give everyone a few crumbs of the pie.
The Universal Social Charge was cut. Social welfare payments were raised. Essentially everyone was at least a little better off. All’s well that ends well.
Except there was actually a small tax rise included in the Budget. Because it was so small, it barely merited comment. But it should – it is potentially the first step in much higher taxes for workers down the line.
The charge in question was PRSI (Pay Related Social Insurance). This is used to fund the social insurance fund, which is primarily used for paying the state pension.
For PAYE workers, employers pay up to 11% PRSI. The employee themselves pays 4% of their gross salary.
The change in the Budget is this rate will rise for workers by 0.1%.
The increase is tiny. For someone earning €35,000, it equates to €35 per year. What is important though is it is a sign of intent. PRSI is likely going to continue to rise in the coming years.
This is because extra funds will be needed from somewhere to help pay the State’s pension bill, which will rise rapidly in the coming decades as the population ages.
The tax increases in future are set to be much larger – various estimates have put the PRSI increase needed to be between 3.5% and 8%. For that same worker earning €35,000, this could mean paying up to an extra €2,000 or so, every year, in tax.
First, some context. By 2040, the state’s social insurance fund is expected to record a deficit of €3 billion every year due to the increased cost of the State pension if the current system remained unchanged.
This would then keep rising year-on-year – the Irish Fiscal Advisory Council (IFAC) has warned the mounting pension bill will be “by far the largest challenge to the public finances in the coming years and decades”.
A key issue with the current state pension system is that PRSI contributions from workers are not invested – they are paid out immediately to current pensioners.
Fine when you have a large workforce of young people which can support a smaller older population. But when the size of each group moves in the ‘wrong’ direction, the system breaks down.
There are several ways this problem could be tackled. One is by raising the age at which people qualify for the State pension. The government had planned to do this before, steadily increasing the qualifying age to 68.
However, unsurprisingly older people do not want to have to work more and the issue blew up during the 2020 general election. The government backed down and current political discourse is focused on keeping the State pension age at 66.
Raising PRSI is the other solution normally put forward. This could be increased both for employers or employees.
The 11% in social contributions Irish employers currently pay is low by European standards, where rates of around 20% are more common.
A fair solution would seem to be raising PRSI for both workers and employees. However, it isn’t clear how this will mesh with the government’s long-delayed plans to introduce auto-enrolment pensions, where companies would pay into their workers’ retirement funds.
If employers will already pay extra into an auto-enrolment pension, should they be liable for higher employee PRSI as well?
As the government continues to insist the state pension will be maintained alongside auto-enrolment, this would appear to be the case.
This will of course be fiercely resisted by business groups, which have already successfully lobbied for lower auto-enrolment contributions. Taoiseach Leo Varadkar has also indicated he is against further increasing employers’ PRSI.
Alongside employers, workers will also face increased PRSI. This 0.1% rise will likely be peanuts compared to what could be in store.
Again, no one wants to pay more taxes. But if the government is planning to do it, IFAC argues the worst way possible would be itty-bitty annual increases, like the 0.1% raise.
The reason is, soon, the working age population will start to fall. Less people to tax means the ones left working will have to pay more to raise the same amount of money.
This is why the organisation recommended raising PRSI by 3.5% over the next two years. This would be an extra €1,200 or so for someone earning €35,000. But it warned doing it more slowly means the rate would eventually have to go up by 8% – over €2,000 a year extra for that same worker on €35,000.
IFAC’s argument makes sense. It doesn’t take an economic expert to recognise the extreme difficulty paying an extra €2,000 a year in tax would have on many earning a wage as relatively modest as €35,000 in a country as expensive as Ireland.
But €1,200 would likely cause plenty of issues too. However, with no plans to raise the state pension age, it is hard to see where else the extra money will come from. Higher PRSI for the working population looks the most likely move future governments will make.
There is no easy fix. With corporate tax windfalls unlikely to last forever, tackling the state pension issue means more money will have to come from somewhere. The question is how fairly the burden can be spread around.
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Another small tax that has slipped tro the net is 0.1 per cent on black bin charges per kilo kindly been collected by greyhound and others.
@Frank Gibney: Sir, you surely jest, have our political masters not assurred us that deregulation of services would mean the competition to probide services would benefit the consumer and as we all know they never let or allow monopolies develop. I loved the tax cur putting money in our pocket from 2024, followed by the carbon tax from midnight that evening.
@Frank Gibney: They charge by weight?? Mine are fixed pricing.
We are an ageing society – although we’re about 20-30 years behind most of this issue
The thing that amazes me here – with unemployment at 4 percent & people coming from all over the world to work here – is how for the last decade plus the priority every budget has become to look after those on social welfare ( I exclude pensioners & carers )
This symbolises to me everything that’s wrong with modern western politics – those ranting away all day every day about injustice & inequality are NOT representative of the ordinary majority
@Gerry Kelly: the vast majority of social welfare has nothing to do with the dole
@Mary Looners: What dole are referring to Carers allowance, Disability etc .
@Fred: nah, he never mentioned them, spongers on the other hand, well they’re a different breed
@Gerry Kelly: Foreign workers come here because we need them especially in the health care sector. We need them because we refuse to pay for or run a fit for purpose 21st century education or technical or 3rd level education system that would benefit our own children or our country.
If our children do manage to get skilled well paid jobs we make them pay ridiculous prices for basic housing if they choose to stay here and can afford to save 50,000 or more as a deposit on a substandard house or unsafe apartment. We then tax them to the hilt to pay for the three or four older people dependent on the state pension that their taxes support. We then ensure that if they commit the ultimate sin of having actual children then – even though they are already paying hugely inflated prices for basic housing – they will be made to pay the value of an extra monthly mortgage for child care for the first decade or more of their children’s lives.
And yet even after all this the right wing ghouls will say that we need less immigration because really we don’t need any new taxpayer’s because our children can carry the burden of the nation’s taxes and unfilled jobs in the health care sector as long as they pay even more tax.
So our children emigrate and we continue to waste taxpayer funds on such “nationally important projects” like the national board for dog racing which received about 100 million euros in the last four years.
@michael mcsharry: Yep, the anti-immigration crowd are intent on condemning the future of the young in this country, they are in denial of mathematical certainty. Not in the least bit patriotic.
@michael mcsharry: Most of them say we need less immigration because they rely on welfare and thnk we’ll run out before they get their cut.
The only people I see with wealth in ireland are retired public sector workers. The ones who got the golden handshake pensions. Its different now of course.
I’m sick of it all,I’m a hard working PAYE worker,at retirement I get a State contributory pension of 264 euro & for some one sitting on their h*le gets 10er less of a non contributory pension,I could go on but pointless, Government don’t care,they only feathering their own nest for a nice little seat in Europe,
They’ll get the heat allowance to more than make up for the 10 euro but you can take pride you worked hard all you’re life helps when it gets cold and no money for heat while billy next door never did a tap is nice and warm,can’t blame anyone for not bothering, hard to see the point the way the system is more you try more you lose seem to be getting worse off continually
@: That pension is supposed to supplement your own pension, Not support you completely.
FFG have become inept at screwing the last cent out of us . That budget was meaningless . The government is not fit to manage our tax take . The government has not got our people or our country’s well being in mind . Corporate FFG
@Mary Looners: with a name like urs thats a bit rich
@BL Music: but they keep getting voted in. And you get the same results
Israel and Hamas are both in the wrong. Both have broken international law. But one has done a lot more damage than the other. One us occupied and the other one is the occupier. The US UK are backing the occupier that is truly amazing. “Oh the land of the free, unless you’re Palestinian”
Good morning, did you just wake up from a 2 week nap.
The USA and Israel have very similar histories. The east coast whites headed west and south and drove the Amerindians off their lands, stole and robbed, made treaties and broke them. When they Amerindians reacted, rebelled, they were mercilessly put down by the US army of the day. We now have museums of the Amerindians. Sounds like an extended Israel in 100 years time with just Palestinian museums
All to fund the Cabbage Heads ludicrous and mostly unnecessary projects. When are people going to stand up and say NO?
@Ollie Fitzpatrick: why don’t you lead the way?
@: be more in line FFG to lead the way and stop appeasing this fruit loop and his party
Our country is upside down.
We reward lazy dole heads and public servants.
We don’t punish criminals.
We will reap what we sow unfortunately.
@Paul: Would disagree…People are charged penalised if convicted of Social Welfare Fraud and rightlyso….Yet on the other hand not on senior banker,Developer, has been held to account for the gangsterism of the banks facilated by politicians. The criminal trial of Sean Fitzpatrick which collapsed due to the shredding of evidence by the state is a classic example…The politicians who abuse their powers will resign if they are a minister, but will still remain a TD with all the perks..The likes of Niall Collins who had to resign and yet who refuses to appear before the ethics Committee concerning his travel allowance…The racing industry that receives €70 millions year on year that has financial irregularities investigations ongoing …No accountability.
No one should pay income tax if the don’t make enough to afford a mortgage. Everything we purchase is taxed, everything!
You’re right, it should be linked to the average cost of living, not counting politicians with a few pensions to draw on.
And they sold off the lottery
Great to see more and more workers being bussed into towns and villages all over the country.
@: exactly,sure all these new workers will be contributing to the pension pot,what’s there to worry about,going forward with a surging workforce all paying PRSI the future can only get better.
The real question is the real un-employment figures, many job-seekers, are nearly forced to take up CE, schemes, training courses, in the CE, schemes, your have to work 20 hours a week, some times a few hours every day, on the training courses you have to go in a least four full days, for the same money you get on jobseekers, but you are taken of the live register of un-employed, you can’t actually go out and seek a proper job, if you are on these courses. Many young people, who get a €100.00 or so on jobseekers, get an extra €60.00 or more, on training courses, live at home, many not contributing to the family expenses,they can live on that sort of income, week to week.
At least the people who paraded a gallows outside the Dail will get a nice little bonus for all their hard work.
I get the feeling reading the comments that many people aren’t understanding how serious a problem this is. According to the CSO statisticians, if we continue on the trend we are on, we will have to take in 4 million immigrants between now and 2050 in order to maintain the ratio of workers to retired people we have right now. The rate we are going, in ten years time, we could have four times as many 80 years old’s as children under the age of one. At that point we are essentially screwed! A declining working age population means a declining economy , it means recessions and job losses and more people on the dole ques. Since the working population just continues to decline when you are in an inverted population pyramid, so does the economy and after three years of that you are officially in a depression, that means people from all walks of life on the dole, and historically depressions hit the middle and upper classes very hard and often the hardest. Say goodbye to the FDI! From what I have read, our healthcare system is in no way prepared for an influx of elderly patients or those in need of residential care. Pensions are going to be a massive challenge, people will have to work older and taxes will have to raised as well as cute to publics expenditure. Housing targets don’t seem to add up as being close to our needs. It just doesn’t add up, we’re averaging about sixty thousand young people a year turning eighteen for the next 3 years and we won’t have the housing stock to supply them. We need young people settling and having children by the new time, its an absolute necessity and we should be devoting as much resources as we possibly can to that goal, it would absolutely idiotic not to. The price that childcare will be after the next 25% price-cut comes, well it should have that price ten years ago. Houses have to be built and people need enough money and security of tenure to feel like they can plan a family. And even with that, we will need immigration- unless you fancy your chances with a depression.
We need married couples to have more children and end abortion in this country. As previous comments have said it is difficult to be able to afford childcare and housing so the government should make it a priority to help couples to have children
@Tommy Mullally: aswel as that more children are needed now because when time comes for the large aging population we have theres not enough working young people there to cover pensions in 20-30 years
@Ollie Fitzpatrick: I believe years ago some media commentator called Eamon Ryan a sex symbol, but your obsession with him is unhealthy. Seek help.
@Name not provided: I can’t afford help with all the money Cabbage Head is taking from my pocket!! LOL
If the government had double the tax take they would still blow it
And yet the tax rate at which the higher rate of tax is paid was bumped up again along with extra tax credits and USC slightly reduced. At the end of the day it all either adds to or takes away from the final number on your payslip. There are probably lots more tax band increases to come. In the event that things hit the skids much of this will just end up being reversed as has always happened throughout the years.
How on earth is Ireland short of money when they have billions in surplus. Shifting cash around should solve the issue. Or cutting TD salaries. Or adding a 0.1% tax to the top 0.1% of earners, or increasing corporate tax by 0.1%. But noooo it’s the worker who will pay.
This is small change but will obviously cause tax increases in the coming decades, however ignoring the benefits of spending money now to deal with mitigating climate change will inevitably lead to much greater tax increases in coming years. The government’s actions in announcing cheques in the post next week to the victims of recent flooding events in Cork and elsewhere is commendable but where is the plan to pay for 10, 20, 30, 100 or 1000 times the number of families whose homes will be wrecked or badly damaged in the next decade or three? As climate change accelerates so will the costs of compensation for it’s victims who after the first claim invariably find their homes and farms uninsurable. Without taxpayer help those homes become valueless and potentially uninhabitable after the next storm.
The same question is being asked in the vast forested areas west of the Rockies in North America in relation to forest fires and in Florida in relation to coastal flooding. Insurance companies are pulling out of home insurance in California and in Florida. How soon before that happens here and the taxpayer covers the whole risk for hundreds of thousands of homes here.
The cost and disruption of not dealing with climate change is certainly going to be many multiples of the cost of actually dealing with it now…..But hey ho the government can get good PR by the cheques in the post strategy and really it would be foolish to look beyond winning the next election because that is really the most important public policy issue isn’t it….?
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