Budget 2018: Increases in housing, health and social welfare

Corporation tax to remain at 12.5%, health spending to reach total of €15.3bn

Pat Leahy and Cliff Taylor of The Irish Times discuss the "tax and spend budget" and its implications. Video: Bryan O'Brien

 

Minister for Finance Paschal Donohoe has announced increased spending of €1.2 billion in Budget 2018 which will fund developments in the housing and health sectors and pay for tax cuts and social welfare payment rises.

The point at where workers face the higher rate of income is being increased, the cost of the Universal Social Charge will fall for most people and the price 20 cigarettes is to rise by 50 cent from midnight.

Social welfare recipients will see their payments increase by €5 and measures lowering the cost of prescription charges for medical card holders were also announced.

One of the main revenue raising measures will be a 4 per cent increase in the stamp duty on non-residential property, which rises to 6 per cent from midnight. Mr Donohoe said the rate had been cut from a high 9 per cent - charged between 2002 and 2008 - in order to stimulate the market and that this had worked.

Housing will be one of the areas where spending increases most with the Minister noting the “corrosive impact of homelessness” on the State in his speech. He announced an allocation of €1.8 billion for housing next year, which he said would help to fund the building of 3,800 new social homes next year.

Mr Donohoe said spending on health was already at a record level but he added that “our health service needs improvement” before announcing an increase in funding for the department of €685 million, bringing its total budget to €15.3 billion next year.

Among the main measures announced are:- €5 increase for all weekly social welfare payments and an 85 per cent Christmas bonus will be paid this year.

- Entry point for higher rate of income tax to raise by €750 to €34,550

- Main 5 per cent USC rate cut by 0.25 per cent to 4.75 per cent; 2.5 per cent rate cut to 2 per cent

- Increase in commercial stamp duty from 2 per cent to 6 per cent

- A sugary drink tax of 30 cent per litre on drinks with 8g of sugar per 100ml and 20 cent per litre on drinks with 5g to 8g of sugar per 100ml.

Pupil Teacher Ratio

Spending on education will top €10 billion next year, which the Minister said was a new peak for the sector. There will be 1,300 more posts in schools next year, Mr Donohoe said, and the pupil-to-teacher ratio will reduce to 26:1.

Paschal Donohoe's speech

He said there will be an additional 800 gardaí next year and another 500 civilians will also be hired to work in the force. There will be €63 million more invested in the justice budget to help develop a “modern police force”.

Mr Donohoe said Ireland’s corporation tax rate will remain at 12.5 per cent. He said corporation tax has seen “unprecedented change and reform in recent years”.

He announced a tapered extension of mortgage interest relief. The relief was due to expire at the end of this year, but will now run until 2020, although will fall to 25 per cent in that year. The relief currently benefits those who purchased a home between 2004 and 2012, and is worth about €850 on average a year and is, according to Revenue, claimed by some 292,500 homeowners.

The Minister announced €20 million more for childcare measures including a further extension of two years free pre-school years.

Rainy Day fund

To “further protect the economy”, he announced that he will establish a rainy day fund of €1.5 billion from Ireland’s Strategic Investment Fund.

He said ramping up capital expenditure too much “would be a dangerous and simplistic” move that would “overheat the construction sector and in turn our economy”.

While the VAT rate will not change for the tourism and services sector, Mr Donohue announced an increase from 13.5 to 23 per cent for sunbed services, on health grounds.

Brexit will bring permanent changes to our trade patterns , he said, and small and medium businesses will need to change. A Brexit loan scheme will see up to €300 million available to SMEs including food businesses “given their unique exposure” to Brexit, to help with their short term investment needs.

An increase of €64 million in the budget for the Department of Agriculture, Food and Marine (to €1.5 billion next year) would also help protect against Brexit, he said.

At the beginning of his speach, the Minister referenced unemployment numbers in recent years. He said unemployment is at 6.1 per cent, its lowest since 2008. Mr Donohoe says it will fall to 5.7 per cent next year, close to the level considered to be full employment.

Reaction

Following the speech, Fianna Fáil took a swipe at the Government’s housing and health policies even as it welcomed measures in the budget which the party said it secured as part of the confidence and supply agreement.

Finance spokesman Michael McGrath warned the Government it would be judged by how it tackles the homeless and housing crisis in particular.

The party’s public expenditure spokesman Dara Calleary said the Taoiseach had promised a doubling of arts spending, but the outcome was a 4 per cent increase.

He referenced the new Strategic Communications Unit in the Department of the Toaiseach (the so-called Government “Spin Department”), which will cost €5 million to set up, despite the Taoiseach previously saying it would be cost-neutral.

Sinn Féin finance spokesman Pierce Doherty criticised the Government’s the record on the health service He said Fine Gael’s tax cutting measures will “return us to the boom and bust” approach of the past.

“What does it mean for the parents who have watch their children in pain” because of the crumbling health services, said Mr Doherty.

Labour leader Brendan Howlin said it was a “stand still” budget for the two main policy areas of health and housing, with no real vision outlined by Fine Gael.

In a series of tweets, Solidarity criticised the announcements on the basis of measures benefitting builders and landowners, with nothing for young people. “Extra fiver a week will pay a massive 2 hours of average Dublin rent, before any further increases.”

‘Squandered opportunity’

Social Democrats TD Catherine Murphy said the Government’s plan to address the housing crisis was a “squandered opportunity that will devastate future generations.”

The Residential Landlords Association of Ireland called the budget “extremely disappointing” and said it would do little to tackle the shortage of rented accommodation.

Siptu president Jack O’Connor said the package was “a slick piece of political presentation but morally indefensible”.

The Irish Council for Social Housing has said Budget 2018 “demonstrates that the Government is investing in social housing”.

The Irish Heart head of advocacy Chris Macey welcomed the introduction of the sugar-sweetened drinks levy.

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