Business Week: State limbering up for Budget 2017

Budget 2017 is just a couple of weeks out at this stage – and with it the first real test of the State’s first minority Government.

With the likelihood of an election in at least the medium term, Fine Gael may take the opportunity to butter up its support base. However, the Economic and Social Research Institute (ESRI) this week poured cold water on the idea of tax cuts.

It said economic activity does “not need to be further stimulated” by reducing personal taxation levels, and that such a move could actually overheat the economy.

Its latest quarterly commentary said the economy was now running close to its full potential, having recovered strongly from the financial crash, and that a neutral fiscal stance in the budget would be prudent.

On the very same day, Minister for Finance Michael Noonan was before the Oireachtas Committee on Budgetary Oversight reaffirming plans for a €1 billion adjustment with €300-€400 million likely to go towards further reductions in the universal social charge.

That being said, the Irish Tax Institute was also out to say middle- and higher-income earners still pay more tax than they did seven years ago despite moves to unwind the various austerity measures imposed during the crash.

New jobs

There was a raft of job announcements this week, and Co Limerick in particular is to benefit.

A €500 million investment programme, with the capacity to create more than 5,000 jobs over the next five years across four strategic sites in Limerick city, was announced on Monday. The following day, Fazzi Healthcare Services said it was to create 300 jobs in Limerick over the same period.

In Dublin, engineering design company Biopharma Engineering is to create 70 jobs over the next three years, while pharma group Mallinckrodt is to create 75 "high-skilled" jobs in Blanchardstown by next year.

Eir said the rollout of high-speed fibre broadband across Ireland would create 100 jobs, while, separately, Yroo, a search engine for shoppers, said 33 more were on the way over the next three years.

It didn’t end there, as consultant SoftwareOne said a “major expansion” of its Irish operations would bring 100 new jobs over the next three years. Biopharma company GE Healthcare also got in on the act with plans for up to 500 jobs with a €150 million investment in a manufacturing campus in Cork.

Tax affairs

The tax affairs of corporations and wealthy individuals were once again in the headlines. The names of many Irish individuals were published as having companies registered in the Bahamas – a known tax haven – although there is nothing illegal about being connected with a company from the jurisdiction.

The registry is normally difficult to access but was made public by the International Consortium of Investigative Journalists. Among others, associates of Irish businessman Denis O’Brien were listed as directors of six companies.

Days earlier, O'Brien gave an interview to Bloomberg in which he said Apple should not be punished for its tax arrangements in the Republic. "Apple played by the rules," he said. "Brussels is out of control in terms of the federalism agenda."

Brazil’s tax authority probably doesn’t agree, given it listed the Republic as a tax haven this week. The move infuriated airlines as it resulted in about one billion reais (€273.7 million) in new taxes on aircraft leases for carriers struggling to regain profitability.

European Commission competition commissioner Margrethe Vestager came out to say she has "no specific concern" about the Irish tax system and is not planning to harmonise corporate tax. She also played down suggestions of fresh state-aid investigations against US multinationals.

Property prices

A revamped Residential Property Price Index by the CSO this week revealed the property market crash was more severe than previously thought. The figures reveal that the peak-to-trough fall in residential property prices from 2007 to 2013 was 54.4 per cent, not 50.9 per cent as recorded previously.

Separately, the ESRI said the Central Bank’s mortgage lending rules were likely to curtail the supply of new homes by up to 5 per cent over the next four years. It said a dip in new mortgage lending would reduce house prices and profitability in construction, which would culminate in a lower number of units completed in each quarter by about 5 per cent, and reduce the State’s overall housing stock by about 0.5 per cent.