From millennials to baby boomers almost all generations benefit but savings are muted
about 5 hours ago
There may have been something for everyone in yesterday’s budget, but as the experience of our budget families show, some gained that little bit more than others. Indeed one-income families will find themselves that little bit ahead thanks to the increase in the home-carer credit, while elsewhere, the main savings are to be found in among middle income earners or the “squeezed middle”.
Low income workers however, such as our Generation Z student Mariusz, who earns €13,500, will have found little to delight in the budget. While low income workers on the minimum wage are set to benefit from an increase in the wage of €0.30 to €9.55 from January 2018, the savings on the tax front are limited, given that many low income workers will find themselves out of the tax net. As the experience of Mariusz shows, for workers like him, who aren’t on this wage, the benefits of this budget are limited.
Millennials may be happy that no change has yet been made to the Help to Buy scheme, which means that they may still be able to avail of the deposit towards the cost of a new house, but for those renting, the Government’s decision not to extend rent relief may disappoint.
Parents of young families will also likely be disappointed with the Government’s plans for the affordable childcare scheme, which have still to deliver on the promises made this time last year.
When it comes to our Generation X families, those who bought their properties back in the boom will likely be pleased with the decision to keep mortgage interest relief – but taper it – to 2020, but will also bemoan the lack of a decent increase in childcare help or child benefit.
One of the bigger winners in this year’s budget is our single income family, who will gain an additional €100 thanks to the increase in the home carer’s tax credit.
On the other hand, while our baby -boomer Sam, who is self-employed, will also benefit on the tax credit front, thanks to the increase in the earned income credit, he is still stuck with the 3 per cent surcharge on his income over €100,000. This means that while those earning less than €70,044 have seen their marginal rate drop below 49 per cent, he still has to pay a top marginal rate of €52 per cent.
Our pensioners are undoubtedly pleased about the €5 increase in the state pension which kicks in from next March; they may be annoyed however that there was no announcement on inheritance tax thresholds, despite a previous commitment to increase the threshold further.
Some of the detail is yet to come however, with details perhaps emerging in next week’s Finance Bill on changes to Dirt and the deduction for pre-letting expenses for landlords.
Overall, nearly everyone has got a little bit to cheer about come January, but no-one is yet back at their 2008 after-tax income levels; and may not be for quite some time yet. Indeed as one of our families found, their upcoming refund from having paid their water charges is actually going to be greater than their benefit from this year’s budget.
Generation Z: Mariusz
Mariusz is a 19-year old student from Clonmel attending University College Cork. He works part-time in a bar to fund college, and full-time over the summer, but with rising rents and a hefty annual contribution fee, he is struggling to make ends meet. His annual earnings are € 13,500 per annum.
Mariusz notes that his net monthly income in 2018 more or less remains the same at € 1,117. If he was on the minimum wage he would have benefited in the increase in the payment from January 2018.
Mariusz is disappointed that the USC entry level has remained static and the private rented accommodation relief was not extended any further. However he hopes the vacant site levy will increase the amount of student accommodation being made available. He is happy to hear about the extra funding into education.
Laura is a single 27-year old who lives and works in Silicon Docks in Dublin, where she works long hours in sales for a US tech company, and enjoys a busy social life. Laura earns € 38,000 per annum.
When she looks at her payslips from 2017, her net monthly income was € 2,516 and this will increase to € 2,533 in 2018. In comparison to 2017, she is better off by € 17 per month in 2018.
Laura welcomes the reduction in the USC rates and the increase in the standard rate band as this leads to the increase in her net monthly income. However, she had hoped the changes would have had a greater impact on her net monthly income.
She is happy to see no change in the VAT rate in the tourism sector, and is hopeful that the proposed increase in the vacant sites levy may increase the availability of rental accommodation.
Millennial: Sarah and Sean
Newlyweds Sarah and Sean are in their early thirties. They live in Kilkenny and are saving hard to buy their first home. Since the arrival of baby Sadhbh, Sean has cut his hours to a three-day week so he can mind the baby, while Sarah has returned to work full-time. Their combined annual income is € 60,000.
Sean did a comparison of what their net monthly income was in 2017 and what it will be in 2018. Their net monthly income in 2018 will be € 4,231 as opposed to € 4,218 in 2017, resulting in an increase of € 13.
Sean and Sarah are happy with the changes to the USC rates, however, as they both earn under the respective standard rate threshold, the increase has no impact for them which is disappointing. Sean and Sarah note that having paid their water charges, their upcoming refund will actually exceed the benefit of the budget.
Generation X: Arthur
Arthur is a single father in his late thirties. He lives in Galway with his daughter Emily, aged 4, and son Harry, 6. Arthur works as a recruitment agent and earns € 39,000 per year.
Arthur is going to take home € 21 more per month in 2018 compared to 2017, with monthly income of € 2,780 in 2018 compared to € 2,759 in 2017.
Arthur is happy that he stopped smoking cigarettes when his son was born, as he saving at least € 12 per day (as he used to smoke a 20 pack a day).
He is delighted to see an increase in his net monthly income, however, he is disappointed that there is no change to the single parent family tax credit and no increase in child benefit.
Generation X: Colleen and Alanna
Colleen and Alanna have been living as a couple for over ten years and live in south Dublin with their two children, aged 9 and 11. They formally celebrated and registered their civil partnership in January 2011, following the passing of the Civil Partnership Act. Colleen works as an accountant earning € 90,000. Alanna does not work outside the family home.
Having looked back on her payslips from 2017, Colleen finds that she will be better off on a monthly basis in 2018 than she was in 2017. Her net monthly income was € 5,052 in 2017, compared to the projected € 5,087 in 2018.
Colleen is happy with the reductions in the USC rates although she feels they could have been more significant. The couple are delighted the home carer tax credit has increased by € 100. Colleen is also happy to see that there has been no increase in the excise duties for petrol as she commutes to work by car each day.
Alanna is disappointed to see that there was no increase in child benefit for the second budget in a row, when all weekly Social Welfare payments will increase by € 5 from the end of March 2018.
Baby boomer: Sam
Sam is married, in his early 60s, and lives in the Dublin suburbs with his wife Rachel. Sam is a self-employed IT contractor.
He has three children, one of whom still lives at home. Sam’s annual income over the last number of years was € 175,000. Sam also owns a rental property in Ranelagh, which generates € 2,500 in net rental income per month. Additionally, he pays mortgage interest of € 500 per annum in respect of the property.
He has looked at the impact successive Budgets have had on his income. His accountant has given him an estimate of his likely liability for 2018, which will show net monthly income for the year of € 8,236 after the deduction of taxes, PRSI and levies. When examining his previous years’ tax assessments, he found that his ‘net’ monthly income for 2017 was € 8,193, therefore representing a net monthly income increase of € 43 in 2018.
Sam is happy that the earned income credit will increase by € 200 per annum in 2018. He is also happy to know that he also benefits from the slight reduction in the USC rates. However, he is very disappointed that the 3 per cent surcharge for self-employed individuals with income over € 100,000 will remain for 2018. He is disappointed to see no increase in the inheritance tax thresholds.
Sam is interested to see the detail of the upcoming Finance Bill regarding the proposed deduction for pre-letting expenses for landlords.
Baby boomer: Amelia
Amelia is 56 and lives in a three-bed semi-detached house she owns in Co. Laois. She works as a nurse in Port Laoise with an annual salary of € 46,000. Amelia has boosted her income by € 10,000 a year thanks to the rent-a-room scheme, which she started in 2014. This is well within the tax-free limits so Amelia receives this amount, tax free on top of her salary.
In 2017, her net monthly income was € 3,686 and this will increase to € 3,708 in 2018, representing a net monthly increase of € 22.
Amelia is happy to see her net monthly income come closer to that before the recession. She is also very happy to hear no changes to the rent-a-room scheme as this is a vital element of her monthly income. She hopes that the additional investment in frontline medical services staff will help ease her heavy workload.
Pensioners: Jack and Bridie
Jack and Bridie are married and living in Cork. They own their family home having paid off their mortgage. Jack and Bridie are in their late 70s. Jack has an occupational pension of € 35,000 and also receives deposit interest and the State Contributory Pension. Bridie receives a pension as a qualified adult. Their total taxable income is € 60,000 per annum.
Whilst cleaning out a drawer in their home, Jack came across some payslips and tax statements and noticed how the various tax changes have affected both Bridie and himself during the period. Their total combined net monthly income in 2018 will be higher than it was in 2017. In 2017, their net monthly income was € 4,436, while in 2018 it will be on average € 4,462 per month. This is an increase of € 26 per month.
Jack and Bridie are happy about the decrease in the USC rate but are even happier that the state pension will increase by € 5 per week from the end of March 2018. This will help bridge the gap for them as they have had to dip into their savings over the past while and their income from deposit interest will decrease in 2018.
Jack & Birdie are delighted to hear there will be more nursing and Garda recruitment as their grandchildren are studying in these fields.
They are disappointed to see no increase in the inheritance tax thresholds.