Everyone was a winner in Budget 2018, with the so-called “squeezed middle” and low-income earners the main beneficiaries of income tax changes.

However, no one is set to clean up as savings will be moderate, with tax cuts meaning that families and individuals are set to save up to €468 a year come next January.

The biggest gains look set to go to those earning less than €14,500 on the minimum wage, the self-employed and one-income families, while medical card holders and those aged over 70 will continue to enjoy a reduced rate of USC for another two years.

“Those on lower incomes will benefit proportionately a bit more,” said Ken O’Brien, a tax director with Pwc, adding that the measures would proportionately benefit higher earners less.

As expected, Minister for Finance Paschal Donohoe increased the threshold at which people start paying the higher rate of tax of 40 per cent, but the scale of the increase was lower than expected, at €750 rather than €1,000, or 0.25 of a per cent. “It’s not a lot of money,” Mr O’Brien said.

It means that someone can now earn €34,550 before they start paying the higher rate of tax, while the threshold will rise from €42,800 to € 43,550 for married one-earner couples. This will cost the exchequer €132 million on an annual basis.

Tax net

However, unlike in previous budgets, which took about one million income earners out of the tax net by raising the levels at which people must start paying the USC and income tax, Mr Donohoe decided to leave the entry point of USC at €13,000, and instead cut the rate at which USC is levelled.

“Proportionally there is already a very high number of people out of the tax net,” Mr O’Brien said.

Mr Donohoe announced a 50 basis point cut in the 2.5 per cent rate of the universal social charge (USC) to 2 per cent, a €600 increase in this ceiling to €18,722, and a cut to the 5 per cent rate, which will drop back to 4.75 per cent.

The limited scale of the cuts indicates the difficulties in cutting taxes and balancing budgets, as well as the importance of USC to the State’s coffers.

“Our hands are tied even if we wanted to spend more money,” Mr O’Brien said.

The total cost of USC measures is given as €177 million. It means that the marginal rate of tax will decline from 49 per cent to 48.75 per cent for those earning up to €70,044, and, as Mr O’Brien noted, should diminish the disincentive on people to work more. However, he added that the top marginal rate of tax remained 52 per cent for those earning above €70,044 - which was still too high.

“The fact remains there is an income tax rate of 52 per cent for earners over €70,044, which is hindering us in the global race for talent,” said Irish Tax Institute president David Fennell.

Two years

Mr Donohoe also announced an extension of another two years to the reduced rate of USC for medical card holders. It means that these card holders and individuals aged 70 years and older whose aggregate income does not exceed €60,000 will now pay a maximum USC rate of 2 per cent.

Mr Donohoe did not signal how the much vaunted merger of USC and PRSI will work, apparently leaving this to a working group which will publish a strategy later. A key objective of this process, Mr Donohoe said, was that it “does not narrow the tax base but ensures that our personal taxation system is both competitive and resilient in the future”.

Mr O’Brien said it was “not surprising” that the Government has pushed the timeline on this given the complexity of the process.

Benefit in kind is also to change, with the Minister announcing a 0 per cent rate of benefit in kind on electric cars for 2018.