Finance Minister Brian Lenihan has told the Dáil he will reduce the value of tax bands and credits by 10% in line with overall reductions in income, while he also wants to tackle the 'excessive' reliefs associated with private pension provision.
The Minister said the country's income tax system as it stands today is no longer fit for purpose. He says too few income earners pay any income tax, while too many high earners have opportunities to shelter their income from tax.
More details on the tax changes and how they will affect people here
As a result of the changes in the Budget today, 139,500 people who were exempt from income tax in 2010 have now been brought into the tax net.
In addition an additional 91,000 people who were previously paying tax at the standard rate of 20% have been moved into the top tax bracket and are now liable to income tax at the 41% rate.
Today's Budget will abolish the income levy and health levy and to replace both with a single universal social charge which will have one set of rules on a broad base. The rates will be 0% up to €4,004, 2% up to €10,036, 4% from €10,036 to €16,016 and 7% above this level.
The employee PRSI contribution ceiling will also be scrapped while the PRSI rate for the self-employed, higher earning public servants and office holders will be increased.
Mr Lenihan said those on the new reduced minimum wage will not be brought into the tax net.
He also said that the changes made today generally either maintain or enhance the incentive to work relative to social welfare. 'We must always ensure an appropriate balance between the rewards from work and income support from welfare,' he stated.
As signalled in the four-year plan, employee PRSI and health levy relief on pension contributions are being abolished. Employer PRSI relief on employee pension contributions is being reduced by 50% from January 1.
The annual earnings cap for tax-relievable pension contributions is being cut from €150,000 to €115,000. The portion of retirement lump sums above €200,000 will be subject to tax.
Broadening the tax base
Minister Lenihan said that he is abolishing or restricting another nine tax reliefs. Many property-based reliefs have already been scrapped but some legacy costs remain. Such costs will be further restricted as a result of today's measures with three moves targeted in particular at passive investors, Mr Lenihan said.
Among the tax reliefs which are to be abolished from January 1 are the relief on trade union subscriptions, on subscriptions to professional bodies, benefit-in-kind on employer-provided childcare, and on loans to acquire an interest in certain companies.
In addition, rent relief will be phased out over eight years, while the patent royalty exemption is to be scrapped.
He said that restrictions on the carry forward capital allowances will start in 2011 and impact progressively over the next few years. From next year, Section 23 relief will be restricted to income from Section 23 property and a guillotine provision will make sure that all unused capital allowances after 2014 and Section 23 reliefs are lost.
The base for capital acquisitions tax is also being broadened by reducing the tax-free thresholds by 20%, The DIRT rate on ordinary deposit accounts goes up by two points to 27% and on longer-term deposits by two points to 30%.