Business week: Pre-budget speculation begins in earnest
Also in the news were diesel cars, Seán Dunne, Irish banks and artists’ tax relief
The Revenue this week set out various options that Minister for Finance Paschal Donohoe might pursue in his first budget on October 10th. Photograph: Brenda Fitzsimons
Pre-budget speculation ramped up this week with the publication of papers from the Tax Strategy Group. The group of senior civil servants set out various options that Minister for Finance Paschal Donohoe might pursue in his first budget on October 10th and caused a bit of controversy when they raised the prospect that the capital gains tax relief currently enjoyed by property owners when they sell their family home could be abolished or amended.
More pointedly perhaps, the group could find no down sides of such an approach. Taoiseach Leo Varadkar however, was quick to downplay the suggestion, ruling out any changes to the existing arrangements.
Elsewhere, the papers noted some measures that would be pleasing to landlords, such as accelerating mortgage interest relief back to 100 per cent, as they also warned that across-the-board increases to social welfare payments would be “very expensive”. Instead it suggested that any increases should be “targeted”. One group likely to benefit anyway will be pensioners, as Varadkar has previously committed to an increase in the €235 weekly rate.
More bad news for smokers may be on the way, however. The group said there was still scope for an increase in the cost of cigarettes, with a suggestion of an increase in excise duty of up to €1 a pack. Vapers, however, may still escape the excise expense; the report does not recommend applying excise at this time, as many consider e-cigarettes to be less harmful than cigarettes.
Mixed fortunes for banks
It was a week of mixed fortunes for Irish banks. Consistently viewed as the poor cousin, it was Permanent TSB that dragged. Shares in the Jeremy Masding-led bank had fallen 24 per cent over a week by Thursday as Davy became the second brokerage to downgrade the stock.
In its client note, Davy said it did not expect the bank to pay shareholder dividends until at least 2020.
For Ulster Bank it was more of the same. Operating profit at the lender owned by Royal Bank of Scotland fell by a third in the first half of the year to €104 million. Additionally, it took a charge in the same period of €39 million having uncovered issues in its personal and commercial loan books when working through cases where mortgage customers had been overcharged. But aside from all of that, the bank said it had made “significant progress in building a more sustainable bank for the future”.
On sustainability, one bank that has been sustaining positive sentiment is AIB. Analysts have begun rating the stock following the bank’s return to the markets last month. Goodbody, AIB’s second corporate broker, gave the bank a “buy” rating, as did private bank Investec. But Davy, JP Morgan, Goldman Sachs and Morgan Stanley all gave the stock a neutral rating with one analyst advising investors to “remain cautious”. While the banks shares dropped ever so slightly, this was a relatively upbeat assessment on an institution that firmly held its spot in the dog house in the years after the recession.
Dunne found in contempt
Having filed in the US for bankruptcy some four years ago, property developer Seán Dunne has found it difficult to exit the process and start afresh. Now, he has been found in contempt by a judge in the United States. The former “baron of Ballsbridge” disobeyed a subpoena compelling him to produce emails about his property dealings to his bankruptcy official.
Mr Dunne’s US bankruptcy trustee, Rich Coan, is trying to find out the developer’s role in a spate of property deals as part of his legal action aimed at reversing tens of millions of euro in asset transfers to the businessman’s wife, Gayle Killilea.
The developer must also produce a list of email accounts he has used since the start of 2010. The trustee wants Mr Dunne’s emails outlining his business relationship with Ms Killilea and John Dunne, his son from his first marriage, and various US companies he owns. The Co Carlow developer can appeal the judge’s ruling.
Meanwhile, diesel was in the news all week and for all the wrong reasons, with Germany’s car chiefs summoned to a crisis summit with political leaders keen to clean up the industry’s badly damaged image. Closer to home, there was a warning that Irish motorists could be hit with a whopping €140 annual tax increase.
The stage-managed “diesel summit” in Berlin saw the bosses of BMW, Daimler and VW Group coming together to promise to introduce measures to reduce the emissions of nitrogen oxides, the by-product of diesel most harmful to human health.
Many doubt whether the promise will do much to restore the reputation of diesel technology, which is in tatters following growing claims that car firms have been playing – and in some cases cheating – regulatory regimes.
Back at home, Irish motorists were up in arms after news emerged the Government is considering bringing the cost of cars into line by hiking the excise on diesel.
Not surprisingly, consumer groups and the AA warned against such measures, saying that to penalise diesel drivers now after spending the previous decade encouraging people to switch from petrol would be an “act of bad faith” on the Government’s part. With a number of TDs also now expressing concern over the possible impact on businesses, it will be interesting to see whether the Government will be prepared to go the full mile.
As we start to see the phasing out of fossil-fuel powered vehicles generally, led by Britain and France, the Government was also urged this week to consider scrapping vehicle registration tax and introducing reduced motorway tolls for electric cars to ease the transition away from petrol and diesel.
Providence shares plunge
Speaking of fossil fuels, it was a bad end to the week for Irish oil and gas explorer Providence, whose shares plunged as much as 46 per cent on Friday.
The drop came after preliminary analysis of drilling of its Druid project 220km off the southwest of Ireland indicated the prospect “comprises a porous, water-bearing reservoir”. In plain English, this means the well is dry – at least insofar as the presence of oil or gas is concerned.
Further drilling of a deeper prospect, Drombeg, on the same site, is expected to deliver readings by the end of the month.
Shares in the Providence slumped fell to as low as 8.625p per share, valuing the company at £51.5 million (€57 million) as Davy analyst Job Langbroek noted that the result was “clearly disappointing”.
O’Connell joins exempted artists
What makes an artist? There may have been some furrowing of brows earlier this week when disclosures from the Revenue Commissioners revealed the mixed bunch that have availed of the exemption so far this year.
While authors Sally Rooney and Eithne Shortall, and painters Andrzej Gudanski and Damien Flood made the list, it also included rugby star Paul O’Connell, for his book The Battle, penned with Limerick journalist Alan English, and radio and television broadcaster Jennifer Zamparelli, for her writing work on TV show Bridget & Eamon.
The scheme, through which artists can apply for an exemption from income tax (though not PRSI or USC) on earnings from an approved work for one year of up to €50,000, has proved to be more bountiful in recent years for the country’s writers, composers, sculptors and painters – and sports stars. Back in 2014, the average amount saved by those successfully applying for the scheme was just €2,196, but figures just published show the amount increased to €3,802. Good news for the country’s artists given that many struggle to make a living; even renowned writer Donal Ryan – a previous recipient of the tax break – had to return to his day job earlier this year.