Sunday Business Post | Irish Business News

Breaking News Business Ireland World Sport Weather

Navigation (Home)News Ireland World News Features The Market Media & Marketing Comment & Analysis Computers In Business Profile Property Motoring Agenda Letters

People In Business Budget Forum Events / Conferences Company Reports Tools Crossword Search the archives Newsletter IMODE RSS

Text-Only

Middle-income earners may be hit by PRSI changes
Sunday, October 05, 2008 By Ian Kehoe and Pat Leahy
Changes to the PRSI system which would increase taxes on hundreds of thousands of middle-income earners will be considered by the cabinet when it meets to finalise next week’s hairshirt budget.

Ministers will hear proposals to abolish the €50,000 ceiling on income subject to PRSI contributions, as well as a range of increases to excise duties and other indirect taxes.

Most spending plans for next year were agreed by the cabinet yesterday, and will involve cuts across all areas of government activity. Ministers will turn their attention to the revenue side in meetings this week.

The PRSI changes, if agreed, will target the middle class. Currently taxpayers (except for some public servants, who are exempt) only pay PRSI on the first €50,000 of their income. Abolishing this ceiling would mean that their total income becomes subject to the tax, currently paid at 4 per cent.

However, ministers will also consider a cut to the PRSI contribution rate by one percentage point, cushioning some low earners from the move. A reduction in the PRSI rate for self-employed workers is also being mooted.

Lenihan and a number of senior cabinet ministers are believed to favour the changes to the PRSI system, as they do not involve increasing income tax, but would generate additional income.

Fianna Fail promised to abolish the PRSI cap during the last election campaign but said it would simultaneously cut the rate from 4 per cent to 2 per cent, while also cutting income tax rates. This meant that only very high earners would have seen their tax bills increase.

However, under the current proposals, many middle income earners will pay more tax.

The government will also look at a number of other avenues to bolster the exchequer. Some ministers believe that the current climate will allow them to make policy changes that would be politically impossible at less difficult times, such as taxing child benefit and introducing university fees.

A number of indirect taxes are likely to be increased in the budget, which will be announced in nine days’ time.

Duty on betting and tobacco is also on the table, according to government officials. The government will announce significant cutbacks across al l departments.

The Horse and Greyhound Racing Fund, which accounts for 33 per cent of the entire budget of the Department of Arts, Sport and Tourism, is under review because of the slump in government finances.

The national swimming pools project has been sidelined, while phase two of the National Sports Campus in west Dublin will also be postponed.

A number of transport projects will also be scaled back or abandoned completely. All ministers have been ordered to come up with additional cuts in departmental spending, with discretionary spending in all departments slashed.

Yesterday’s cabinet meeting was the third meeting in a week. The cabinet met on Thursday to consider the implication of the latest exchequer figures, which showed that the deficit has now reached €9.4 billion.

Click here for Sunday Business Post stories before this date