Seven austerity budgets down, but this year brings some cause for optimism
Much done to address business concerns
A shopper watching the Minister for Public Expenditure & Reform Brendan Howlin addressing the house, in a Dublin city store on Budget 2014. Photograph: Eric Luke
This was our seventh austerity budget and according to Minister for Finance Michael Noonan, “Ireland is open for business”, it wants to “play fair and play to win”, and it “is to be part of the solution to the global tax challenge and not part of the problem”.
Noonan confirmed the Government’s commitment to the 12.5 per cent rate and moreover included this commitment as part of Ireland’s International Tax Charter, notwithstanding coalition discussions in Germany. This is what the FDI sector needs to hear right now.
From a reputational perspective, he confirmed Ireland’s active participation in OECD and EU initiatives. He committed to deal with the issue of “stateless” companies in the upcoming Finance Bill.
This budget required €2.5 billion consisting of expenditure cuts and tax increases to be taken out of our economy. This year’s tax savings’ requirement was made easier than previous budgets in that Noonan could point to savings coming forward from last year.
These comprised, among others, the effect of a full year’s Local Property Tax, increases in capital tax rates and a pension adjustment. This latter change was signalled with the intention to cut tax advantages in funding pensions. The main question was how this was to be done, which was answered in the form of the maximum fund that could be built up tax efficiently being reduced from €2.3 million to €2 million.
This budget was signalled as an entrepreneurial budget and it made some inroads there with the adjustment to the R&D credit to allow additional outsourcing to help smaller companies and indeed the two-year income tax exemption for certain start-ups will be welcomed.
A new relief from Capital Gains Tax on reinvestment of previous asset disposals in new productive trading activity should be well received. Further, the removal of the Employment and Investment Incentive (EII) from the high earner’s restriction has been on entrepreneurs’ shopping list for some time and will be welcomed.
The hospitality sector’s VAT reduction to 9 per cent was previously introduced as a temporary measure and has been regarded as a positive move. In a response to a recent Dáil question, Noonan referred to the impact of the low VAT rate on the tourism sector noting that the most recent data available related to 2012 and shows a year-on- year growth for the accommodation and food services sector compared to 2011.
There were musings that the original rate would be restored given that the reduction had done its job but Noonan left it as is to “reinforce success when possible”.
The construction sector, which saw its first growth for some years, received a number of incentives. The homeowners income tax credit of 13.5 per cent on certain improvement expenditures on their home may encourage such owners to release some of their savings and invest in their home.
The measures to enhance our current Real Estate Investment Trusts by allowing their inclusion as an investment option in the Immigrant Investor Programme, while welcome, could be taken further.
Last year’s budget brought about tax relief under the City Living Initiative for certain expenditure on properties in Limerick and Waterford. This year it is being extended to certain properties in Cork, Galway, Kilkenny and Dublin. Indeed, extending the exemption from Capital Gains Tax for the purchase of property held for seven years to property acquired in 2014 will be particularly welcomed.
The absence of any specific measures to bolster the competitiveness of our international financial services sector is somewhat disappointing, as was the bank levy and indeed the additional pension levy. It is hoped that the upcoming Finance Bill (due out on the 24th of this month) will address some of the specific requests made by various industry groups.
Seven austerity budgets; maybe we’re done? Next year’s GDP growth target of 2 per cent on which this is predicated is ambitious.