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The pre-Budget discussions this year have been dominated by the threat of a No Deal Brexit. This meant that there was very little fiscal space for significant changes in the area of personal tax. Income tax cuts signalled recently by the Taoiseach failed to materialise in Budget 2020.

The adjustments that were made were limited in scope and targeted at specific groups. Social welfare recipients have been protected from the worst impacts of the increase in carbon tax announced today, but there is not much for individual taxpayers in Budget 2020.

Universal social charge

There have been no adjustments made to the USC rates this year. This is somewhat surprising given that adjustments were made in prior years to USC bands, particularly the ceiling at which the 2% rate applies (to take account of an increase in the minimum wage).

Without an adjustment to this ceiling, which currently stands at €19,874, a full-time worker earning minimum wage could have a small part of their wages liable to USC at a rate of 4.50% once the expected increase in the minimum wage to €10.10 per hour takes effect next year. With no changes being made to the rates of USC, the marginal aggregate rate of Income Tax, USC and PRSI remains at 48.50% for those earning up to €70,044. The application of the reduced rate of USC for medical card holders who earn less than €60,000 per annum was due to finish this year but it has now been extended to the end of 2020. There is no change in USC for those earning less than €60,000 per annum who are over 70 years of age.

Despite being introduced as a temporary measure in 2011, the USC has been in place for nearly a decade, and one would be forgiven for assuming it is now a permanent part of the Irish personal tax regime.

In February 2018, the minister established a working group to examine the potential amalgamation of USC and PRSI over the medium term. The findings of the group have been made public today, with no clear recommendation on how to proceed at this point.

Income tax bands

No changes have been made to the income tax bands or rates. The latest figures available from the CRO indicate that average weekly earnings in 2019 are growing at a rate of 3.50% (up from 3.30% at the same time last year). With no adjustment to the income tax bands, this growth in wages will deliver more income tax for the Exchequer, and could push some workers into higher tax bands.

Earned income credit

The earned income credit was introduced from 2016 to help reduce the differential in taxes payable by employees and self-employed individuals. The minister announced that the credit for 2020 will increase by €150 to €1,500.

This represents further progress towards parity between the tax credits available to employees and self-employed persons. A difference of €150 still remains, and this may be addressed in next year’s Budget. In addition, from November 2019, the self-employed will be able to sign up for jobseeker’s benefit should their businesses fail. This will also help the self-employed claim benefits similar to their employed counterparts.

Home carer credit

In line with recent years, the home carer credit is to be increased for 2020. The latest change will see the full credit increase by €100 to €1,600 for 2020. The full credit will be available where the carer’s income (excluding Carer’s Benefit and Carer’s Allowance) is €7,200 or less, with a tapering credit available to those with income between €7,200 and €10,400.

CAT thresholds

The minister announced an increase in the lifetime tax-free threshold that generally applies for capital acquisitions tax (CAT) purposes for gifts or inheritances taken by a child from a parent since 5 December 1991. This threshold is to be increased from €320,000 to €335,000, and it is expected to take effect for gifts or inheritances taken on or after 9 October 2019. The increase announced today is modest and there is significant work yet to be done to restore the threshold to previous levels of in excess of €500,000.