Low earners hit by Irish income tax reform

Low earners on as little as 15,300 euro (£12,900) a year will start paying income tax in a savage shake-up of the revenue system.

The entire tax base is to be widened with relief on pensions' savings slashed over the next three years as the Government tries to take in an extra 1.9 billion euro (£1.6 billion).

Workers will be hit with two-thirds of the reforms next year as Ireland attempts to move one rung from the bottom of the EU tax ladder.

The hikes will see the tax net open at 15,300 euro, compared to 18,300 euro (£15,500) where it starts now.

In pay cheque terms that means a single person earning 55,000 euro (£46,600) will see their salary fall by 1,860 euro (£1,576) a year, or 36 euro (£30) a week.

A one-income married couple on the same wages will see their take home pay fall even further, 2,310 euro (£1,950) a year, or 44 euro (£37) a week.

The Government said the tax base had been eroded to unsustainable levels during the Celtic Tiger with the burden falling on a smaller number of people. It now aims to put income tax levels back to 2006 levels.

The State, along with most European countries, has been battling to encourage young workers to save for their future and as a result built up 2.5 billion euro (£2.1 billion) of pension tax relief.

The system, which at present strongly benefits middle income earners on about 45,000 euro (£38,000) will be overhauled and slashed in half raising 700 million euro (£593m).

Income tax relief on pension contributions will be reduced from 41% to 34% in 2012, to 27% in 2013 and 20% in 2014.

The Government estimates workers on those wages paying into a pension could see their pay hit by 2.5%.

The plan noted that officials were concerned about putting people off saving for their futures and that the move may reduce private pensions.

But it added: "However, the Government is committed to raising 700 million euro from this sector over the period of the plan and is willing to engage with the industry to examine alternatives to deliver this outcome."

The Government also said the reforms on relief would be monitored to ensure no abusive tax sheltering.