Budget 2009 Highlights

The 2009 budget, announced in Dail Eireann yesterday afternoon is tough, with increases in almost all areas of  Taxation, and severe cuts in Public Spending. There is some disappointment among commentators that the target budget deficit for 2009 will be left at 6.5%, well above the EU guidelines of 3%.

This indicates another tough budget is expected next year. According to Minister Lenihan “This Budget sets out a plan to deal with the most unfavourable set of circumstances. The aim is to restore order and stability in public finances, to increase productivity and competitiveness and to protect those who are most vulnerable in our country.”

The budget includes temporary increases in income tax coupled with increases in Vat, DIRT, Car tax and excise on cigarettes. Increases in the state pension, mortgage interest relief for first time buyers and the basic tax bands are all broadly welcomed. Cuts in Ministerial and senior civil servant wages by 10% and a reduction in government agencies by 41 were also announced.

A summary of the key points are as follows: 

• Income Tax Levy of 1% for all income up to €1,925 per week (€100,100 per annum) and 2% on the balance above this amount. The Income Levy will be kept under review.
• DIRT increased from 20% to 23% whilst Exit Tax is increased from 23% to 26%.
• Capital Gains Tax increased from 20% to 22% effective immediate.
• The annual earnings limit for determining maximum tax-relievable personal contributions for pension purposes is reduced from €275,239 to €150,000 effective from 1 January 2009. For example, a person aged 52 can currently make a personal contribution to their pension of 35% of their net relevant earnings, up to a limit of €275,239. From 1 January 2009, this is restricted to 35% of net relevant earnings, up to a limit of €150,000.
• Health Expenses relief will be granted at the standard rate only (previously marginal rate) from 1 January 2009.
• Stamp Duties applicable to ATM and Debit Cards are reduced.
• Corporation Tax of 12.5% remains unchanged.The current rate of mortgage interest relief is being increased from 1 January 2009 for first-time buyers from 20% to 25% in year 1 and year 2 and to 22.5% in years 3,4 and  5. The additional relief will be available to new first-time buyers and first–time  buyers who have bought a house in the last 4 years.
• The current rate of mortgage interest relief for non-first-time buyers is being reduced from 20% to 15% from 1 January 2009.
• Spending on health is up 2.1% to €15.8bn, social welfare is up 8.4% to €19.6bn and education is up 2.7% to €8.7bn.

Please contact us if you would like to discuss the impact of the budget changes on your finances.  Our team of financial specialists provide a comprehensive financial planning service to examine all the different aspects of your finances and lifestyle.