Donohoe gets ready to release budget white smoke
Business Week: also in the news were housebuilding, Brexit and Ryanair
Minister for Finance Paschal Donohoe and Taoiseach Leo Varadkar. There is limited room for manoeuvre in the budget, with tax receipts still running behind target
When the College of Cardinals, the Catholic Church’s most senior officials, shuffle into the Sistine Chapel to deliberate on the election of a new pope, they chant “Veni, Sancte Spiritus” to summon the Holy Spirit to guide them.
Minister for Finance Paschal Donohoe is not so lucky in his friends – grappling with lobbyists as he deliberates on measures for Budget 2018 from Merrion St – but there will nonetheless be white smoke come Tuesday afternoon.
Despite the rafts of positive indicators about the economy in recent months, Donohoe is expected to have limited room for manoeuvre, with tax receipts still running behind target.
The Government has collected just over €35 billion in taxes so far this year, €212 million less than expected. The below-par performance was again down to income tax, which came in 1.4 per cent or €188 million below profile. Finance officials expect the shortfall will be closed by the end of the year.
A smaller than expected pie, though, will do little to placate those hungrily eyeing it, and businesses have identified a reduction in the personal tax burden as a key priority.
A PwC survey of 50 decision-makers proposed widening the 20 per cent income tax band, while there was also support for merging the universal social charge (USC) and PRSI.
Meanwhile, the Economic and Social Research Institute warned the Government against cutting taxes while the economy is growing so strongly. It bluntly pointed out there was no good reason to further stimulate consumption through tax cuts when the State was motoring towards full employment.
However, the institute stopped short of criticising the Government’s proposed budgetary adjustment for next year, which is likely to include cuts to personal taxes.
Among the many other kites being flown there are indications there might be a partial restoration of the bereavement grant and reductions to prescription charges.
Taoiseach Leo Varadkar has indicated there will be increased funding for people with disabilities after he acknowledged there were lots of shortcomings and problems in the sector.
For its part, the Society of the Irish Motor Industry – warning of a potential “perfect storm” similar to that which decimated the sector in 2008 – called for stability on vehicle registration tax, motor tax and fuel duties.
In terms of revenue-raising measures, a rise in stamp duty on commercial property is being considered.
The “he said/she said” rhetoric around housebuilding activity got its latest instalment from Goodbody, which said construction was “substantially below” what official data suggests.
Based on building energy ratings, its tracker shows 5,377 houses were completed in 2016. That compares to 14,932 completions indicated by official data, which derives from electricity connections.
One project that will not be proceeding in its current guise is property group Ires Reit’s 450 apartments in Sandyford, south Dublin. It lost an appeal against a decision refusing it permission this week, and is now expected to submit new scaled-back plans comprising 350-400 units.
Meanwhile, the average cost of a home in Dublin has climbed by 11.8 per cent over the past 12 months, and double-digit house price increases are set to continue all the way through next year, according to the latest house price report from MyHome.ie, which is owned by The Irish Times.
The Government’s plan for the crisis involves repurposing Nama to help drive housebuilding. Sources believe the new Nama will be focused on “developing the land it holds and lending to non-Nama developers to build at commercial rates”.
Merrion Stockbrokers said the Government should penalise property investors as individuals who want a house to live in should be given precedence over those who are in it purely for investment purposes “and looking to make a quick buck”.
Separately, Glenveagh Properties, a new Irish housebuilder backed by US private equity firm Oaktree Capital, has secured enough orders to cover its €550 million initial public offering (IPO) scheduled for next week. Glenveagh said it has about 1,700 “shovel-ready” units and plans to be building at least 1,000 homes by 2020.
Dublin received a perhaps unexpected boost in its efforts to draw business from post-Brexit London this week when the City’s own lord mayor plumped for it over rivals Frankfurt and Paris.
However, Andrew Parmley, who represents the City of London and the broader British financial services industry, did add that the movement of people out of the British capital has been smaller than anticipated.
“If I were the person making the decision to leave the UK, I think I would be thinking of Dublin before anywhere else,” he told The Irish Times. “I would put Dublin ahead of Frankfurt or Paris because of the language question.”
Meanwhile, IDA Ireland chief executive Martin Shanahan said competition from other states and cities for foreign investment has never been as strong. He called for steps to be taken to safeguard the country’s competitiveness.
Ibec, the business lobby, echoed that call, saying the failure by the British government and EU officials to achieve progress in Brexit negotiations made it even more crucial that measures to support Irish businesses be included in Budget 2018.
Ryanair chief executive Michael O’Leary irked the sensitivities of the Public Accounts Committee this week when he said he was too busy sorting out the airline’s rostering mess to attend a grilling by its members.
It has been a less hectic week for the airline, which is still trying to get a handle on a series of recent setbacks. It promised its pilots significant improvements in pay and conditions on Thursday, saying it would exceed rates paid by rivals and improve job security.
O’Leary sent a three-page letter to its pilots promising “significant improvements to your rosters, your pay, your basing, your contracts and your career progression over the next 12 months”.
Changes to the roster system would mean that “your days off will really mean days off”, he added. A significant number of pilots are said to have left Ryanair in recent months.
Lo and behold, there was even some good news for the airline. Passenger traffic grew 10 per cent to 11.8 million customers in September, in line with growth in August but slightly lower than July’s 11 per cent growth.