Budget 2019 contains few surprises and business is happy

Joe Tynan: Industry leaders are confident of sustained growth

Minister for Finance Paschal Donohoe:  emphasised the need to  safeguard our progress and protect against future shocks and global threats. Photograph: Dara Mac Donaill/The Irish Times

Minister for Finance Paschal Donohoe: emphasised the need to safeguard our progress and protect against future shocks and global threats. Photograph: Dara Mac Donaill/The Irish Times

 

Ireland’s economy continues to grow strongly and is forecast to be the fastest growing economy in the euro zone for the coming years.

Minister for Finance Paschal Donohoe has consistently emphasised the need to deliver a budget that safeguards our progress and protects against future shocks and global threats. With so much international change afoot, it is also important that Ireland manages its international reputation and reaffirms itself as a location that provides certainty and stability for business. Against this backdrop, businesses do not want to see any radical changes being made, favouring a steady-as-she-goes approach. Budget 2019 contains few surprises in this context.

In our pre-budget survey, most Irish business leaders expressed a high level of confidence in growth for the year ahead. They see the Government’s key priorities for Budget 2019 including tackling the high personal tax burden and improving our national infrastructure.

Tax perspective

From a personal tax perspective, there are no big budget giveaways. The modest income tax adjustments do not align with wage inflation, meaning that some will pay income tax at a proportionately higher rate in the coming year.

Our infrastructure is not keeping pace with our growth and we lack capacity in many key areas such as broadband, water and roads. Long-term investment in these areas is vital and the Minister’s stated commitment to funding these important infrastructure projects is welcome.

Podcast: Budget 2019

Business leaders have called for measures to support entrepreneurship, particularly ahead of Brexit. We have seen much discussion on the need to rebalance our own economy and to ensure that our indigenous businesses receive the necessary support to help them grow. It is important that the Government recognises the need to develop and enhance the reliefs for entrepreneurs and SMEs and to support talent retention. The Minister has announced some positive moves on this in the area of employment and investment incentives.

The increase in the VAT rate for the hospitality sector from 9 per cent to 13.5 per cent has been widely flagged and will raise much-needed funds for Government. This sector received a significant boost from the 9 per cent rate in recent years and it will be interesting to see if the rate change will affect its future buoyancy, particularly in the restaurant industry.

Tax reform

US tax reform has been a key recent change for US-owned businesses and Irish companies with activities in the US. We are seeing businesses adopt a cautious approach to investment decisions as they wait to see how these changes will play out.

Ireland’s corporation tax roadmap, which was published by the Department of Finance last month, reaffirms Ireland’s commitment to ensuring that our corporate tax code is in line with international best practice. The roadmap signals a raft of important legislative changes to be made to the tax code over the coming years as Ireland implements the EU Anti-Tax Avoidance Directive (ATAD) as well as the recommendations of the Coffey Review.

This year’s Finance Bill will see the first of these measures with the well-signalled introduction of Controlled Foreign Company (CFC) rules. The Minister has also confirmed that a new exit tax regime will be introduced with immediate effect. Clarification that the regime will operate at the 12.5 per cent tax rate is very welcome. However its introduction well ahead of the January 1st, 2020 timeline referenced in last month’s roadmap is surprising, particularly in light of the Government’s stated commitment to provide certainty to businesses.

Economic position

Public consultation is expected to get under way shortly on new interest limitation rules and a review and update to our transfer pricing rules. These measures will be very important for Ireland and the Government’s commitment to consulting with stakeholders as it works through this implementation process is positive.

It is now 10 years since the Irish economy entered severe recession in the midst of the global financial crisis. Much has changed since then and Ireland is now in a strong economic position. However, we cannot be complacent. Much of our success is driven by foreign direct investment and we face significant competition internationally on this front. Tackling our infrastructure deficiencies is vital and Ireland will need to be agile to meet the future challenges and opportunities presented by Brexit, US tax and trade policy changes and wider global tax reform.

Joe Tynan is head of tax at PwC

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