Finance Bill 2011: Key Points

The fast-tracked Finance Bill is Ireland's final legislative commitment under the 85bn euro ($113bn; £72bn) EU/IMF rescue. The Bill was cleared through parliament on Thursday 27th January.

Ireland's upper house of parliament, the Senate, on Saturday 31 January, passed the key finance bill, an important requirement under an agreement reached with the European Union and the International Monetary Fund last year in exchange for a 67.5bn euro bailout package.

The bill will now be forwarded to the Irish President Mary McAleese for signing it into law as the measure has already been passed by the Dail, Ireland's lower house of parliament.

Among many others, the new finance bill calls for an additional surcharge of 3% on annual income over 100,000 euros for the self-employed, increases Universal Social Charge and income tax on bonuses of 20,000 euros or more to 45 and 41 percent respectively, and hikes the maximum payment for medical  card holders to 4%.

The passing of the bill by the Senate on Saturday has cleared the way for calling early general elections. Irish Prime Minister Brian Cowen had indicated on Friday that he would dissolve the parliament early in February and call early elections if the key finance bill clears the Senate. The elections are now expected to be held in early February.

The finance bill required the support of several independent lawmakers to pass though the Dail and the Senate, as the coalition government led by the Fianna Fail party had lost its majority in the parliament last week after the Green party pulled out of the ruling coalition.
 
Irish Budget and Cross Border Workers.

The Irish Revenue Commissioners recently announced changes to the tax rules applying to cross-border workers.
• Employees of Northern Ireland companies working in Ireland will no longer be subject to double taxation.
• Since new tax rules came into force in 2006, all employees working in Ireland became subject to Irish PAYE, even if they were already paying PAYE in their home country. Now, provided some reasonable conditions are met by their employers, workers on assignments of up to six months in Ireland will not be liable for Irish PAYE.
• Employees normally living and working in Northern Ireland will pay PAYE as usual under the UK tax rules, provided their spell of employment in Ireland does not exceed six months.

Income Tax
Frontier workers living in the North and working in the South will pay more income tax in the South as a result of the budget.  This should mean that they will pay less of a top up amount to the HMRC at the end of each year via their annual Personal Tax Return. 

Universal Social Charge
The Health Levy and the Income Levy will be replaced by a Universal Social Charge effective from 1 January 2011. The highest USC rate of 7% will apply on all income over €16,016.
Recently cross border workers have been exempt from the Health Levy (since April 2010 when prescription charges were dropped in the North).  They have also been able to include the Income Levy as tax paid for the purpose of the Double Taxation Treaty. 

Recap on Measures Announced in the Budget
• The Irish Government last November said a planned 2.8bn euros saving in welfare expenditure by 2014 would return it to 2007 levels.
• It claims this is required because working-age social welfare rates are now more than twice their rate in 2000.
• Fiance Minister Brian Lenihan cites the substantial reductions in tax and increases in welfare as made possible by the very high level of property-related tax receipts taken in by the Exchequer during the boom years.
• There will be a 10 euro per month reduction in child benefit rates. This means, for example, that the benefit for the first child will be cut to 140 euros from 150 euros.
• However there will be no reduction in the state pension this year.
• One piece of welcome news was the announcement of an additional 40 euros payment to households in receipt of the winter fuel allowance because of the recent harsh weather.
• Universal Social Charge: The new Universal Social Charge (USC) will replace both the health and income levies. The highest USC rate of 7% will apply on all income over €16,016.
• As announced as part of the Four Year National Recovery Plan – the national minimum wage is going to be cut from €8.65 an hour to €7.65 an hour. This is a 12% drop. The new rates come into effect on February 1st 2011.
• The changes in the Budget to PRSI and tax as well as the new Universal Social Charge will result in a drop in take-home pay for the majority of workers in Ireland.  For example – a single person on €25k a year will see a drop in annual take home pay of €989 – a cut of 4.6%
• However   someone employed in a job with the same salary as the head of ESB – which is   €752,568 a year will see monthly take home pay drop from €31,276 to €31,030 – which is a drop of just €246 – or 0.008%.
• In percentage terms – the effect on the minimum wage earner is over 400 times more than the cut to the head of ESB. The discrepancy grows – high earning, self employed people will end up with more net pay after the changes in this Budget.  A single self employed person with a gross salary of more than €200000 will end up with more. The higher the earnings – the bigger the increase in take home pay.
• Someone who is self employed with a salary the same as the head of ESB - €752,568 – would have had a monthly net pay before the Budget 2011 of €29,490. After the Budget changes to PRSI, Tax, Levies and USC – they will end up taking home €30,871 a month – an increase of €1381.