Budget 2012 is finally here

So Budget 2012 Part 1 is scheduled for this afternoon, with a two-day extravaganza instead of the usual one-day affair. In his ‘State of the Nation’ address last night, Taoiseach Enda Kenny said that the measures that will be outlined in Budget 2012 have been designed to create jobs. Whatever happens today and tomorrow, we know for sure that this is going to be one of the toughest Budgets yet as the Government is going to make spending cuts and raise taxes to the tune of €3.8 billion. Income tax is going to be left unchanged so workers can breathe a sigh of relief.

There have been leaks and hints aplenty in the last few weeks and it looks fairly certain that the changes below are going to be formally unveiled today and tomorrow.

The taxback.com Budget 2012 Tax Calculator will tell you how much better or worse off you are as a result of the Budget. Don’t forget, also, that applying for your tax refund is one the easiest ways to counteract the Budget cuts.

1. VAT increase – One of the worst kept secrets of Budget 2012 was that the VAT rate is set to increase from 21% to 23%. Items affected will include phones, broadband, music, cosmetics, laptops, confectionery and adult clothing and footwear. The only good thing about this is it won’t come into effect until 2012 so Christmas shopping revenue will not be affected by this.

• Household charge – It is an almost certainty that homeowners are going to have to pay an annual charge of between €100 and €200 to their local authorities. It is likely that some households on lower incomes will be exempt.

• Reduction in child benefit – One of the most controversial aspects of Budget 2012 is likely to be the reduction of child benefit. It’s expected to be cut by €10 and this follows on from also being significantly reduced in Budget 2010.

• PRSI changes to passive income - It has been suggested that PRSI will be applied to investment income for all (currently certain individuals with employment income are exempt from PRSI on their passive income).

• Pension threshold changes - We are expecting changes on pensions (a) in relation to the fund threshold i.e. this may be reduced further and (b) in relation to a reduction in the relief available on contributions. The impact of this is likely to discourage people from making pension contributions.

• Capital Gains Tax rise - The government has suggested that Capital Gains Tax (CGT) and Capital Acquisitions Tax (CAT) will be hit. One suggestion here is that they may increase the rate or introduce some form of tiered basis for the rates. Another suggestion is that they may abolish or cap certain reliefs such as retirement relief, business property relief or agricultural relief. They may reduce the CAT thresholds.

• Motor tax increase – Motor tax is also on the list for a nasty hike. We don’t know by how much but it is unlikely to be as much as 63%, as was rumoured in the media.

• Petrol / Diesel price increase – It is expected that petrol and diesel prices will be increased by at least 1%.

• Non Principal Private Residence (NPPR) charge changes – The Government may also increase some of the charges/reduce some of the reliefs for individuals with investment properties e.g. increase the current NPPR charge, further restrict the amount of mortgage interest allowed as a deduction from rental profits etc.

• Prescription charge increase - It has been suggested that they may raise the prescription charge for medical card holders.

So this is what we know – or we think we know - so far. The Budget kicks off at 2.30pm this afternoon so we’ll keep the updates coming thick and fast.