Where Paschal Donohoe gets the money and how he spends it
Budget 2019 framed as first line of defence against Brexit
Paschal Donohoe, Minister for Finance, prior to announcing Budget 2019
As European Union leaders prepare for crunch talks next week on the United Kingdom’s exit from the bloc, Minister for Finance Paschal Donohoe has framed a balanced budget next year – for the first time since 2007 – as the first line of defence for the Republic.
“It makes us Brexit-ready by providing sufficient flexibility to deal with the risk of a more disorderly outcome,” Donohoe said.
But as you can see from the figures below, the exchequer is forecast to register a €2.9 billion deficit next year, excluding transactions with no general government impact. This is due to a number of factors, including the commencement of annual contributions to the Government’s planned “rainy day fund”.
The Government forecasts that nominal gross domestic product (GDP) will rise to a record €341.5 billion next year from €321.6 billion for 2018, reducing the burden of the Government’s debt pile to 61.4 per cent of the size of the economy. That’s less than half the peak debt-to-GDP ratio of 123 per cent in 2013.
A reduced 9 per cent VAT rate introduced in 2011 to boost the then-struggling tourism sector has done its job, as “tens of thousands” of jobs have been created and annual overseas visitors have grown by 3.4 million to record levels, according to Donohoe. He expects to raise a further €466 million in 2019 by raising the tourism rate to 13.5 per cent.
As the EU Anti-Tax Avoidance Directive begins to take effect next year, the Government has decided to apply a 12.5 per cent rate - effective from midnight on Tuesday - against unrealised capital gains when a company moves assets abroad. The Department of Finance doesn’t see this generating any income next year, as there is no immediate reason for multinationals to move intellectual property (IP) out of Ireland.
Capital acquisitions tax
A Budget 2019 move to increase the tax-free threshold for gifts and inheritances from parents to their children to €320,000 from €310,000 is expected to cost the State more than €8 million a year from 2020.
The excise duty on a pack of 20 cigarettes is being increased by 50c, bringing the typical pack up to €12.70. This, and a hike on other tobacco products, will generate an additional €59.4 million for the State coffers next year.
Podcast: Budget 2019
A plan to increase the betting duty on wagers being placed in the Republic from 1 per cent to 2 per cent is scheduled to take effect from January. In addition, a tax rate on commission earned by betting intermediaries or exchanges will rise from 15 per cent to 25 per cent.
An increase in the income tax standard rate band from €34,550 to €35,300 for individual earners will cost €138 million next year, while increases in the home carer tax credit and earned income tax credit for self-employed workers will have a combined €48 million drag on the Exchequer.
The third rate of the Universal Social Charge (USC) is being lowered from 4.75 per cent to 4.5 per cent , while the threshold for the second rate of USC will be increased from €19,372 to €19,874. The measures, according to Donohoe, are aimed at giving “further targeted benefit to low and middle-incomes”.
A 1 per cent vehicle registration tax (VRT) surcharge is being brought in for diesel cars from January, in line with moves by several other EU states and in support of climate and public health policy, according to Mr Donohoe. Meanwhile, an existing VRT relief for hybrid vehicles is being extended until the end of next year.
As the State continues to grapple with a housing crisis, the Government has upped its allocation for the Department of Housing, Planning and Local Government by 26 per cent to €2.3 billion next year. Some €1.25 billon of this is being targeted at delivering 10,000 additional social homes in 2019, through a combination of building, acquisitions and leasing.
Spending on health is set to increase by €1.05 billion next year, bringing the Department of Health’s budget above €17 billion for the first time. Measures include an additional €84 million for mental health services and a 36 per cent hike to €75 million in funding for the National Treatment Purchase Fund for patients on waiting lists.
All weekly social welfare recipients are in line for a €5 per week increase from next March, while the Government plans to fully restore the Christmas bonus payments this year - benefitting 1.2 million people. The bonus was restored to 85 per cent last year. Some €264 million will be spent on the Christmas bonus this December.
The budget for the Department of Education and Skills is being increased by almost 7 per cent to €10.8 billion next year, with measures including almost 1,300 additional posts in schools, and nearly 3,500 further third-level undergraduate places being funded.
Business, enterprise and innovation
A €300 million so-called future growth loan scheme for small businesses as well as the agriculture and food sectors has been unveiled under the banner of the Department of Business, Enterprise and Innovation. This is aimed at building on the €300 million Brexit loan scheme launched last year and forms another part of the Government’s Brexit response.
Additional funds being earmarked for transport capital expenditure will include €286 million being made available for the completion of the runway overlay project at Knock Airport, the Collooney to Castlebaldwin road in Co Sligo and Dunkettle interchange in Cork city, as well as cycling and walking projects around the country.
Donohoe has increased the budget of An Garda Siochana by €60 million, or 3.5 per cent, which will allow for the recruitment of up to 800 Gardai and help the new Garda Commissioner Drew Harris begin a programme to radically reform the police force in the coming years.
Funding for Tusla is due to increase by over €30 million next year to a total budget of just over €786 million, while funding for early learning and child care will rise by almost €90 million to €574 million. Donohoe has also moved to increase the income thresholds for the State’s affordable childcare scheme.
Next year, the Department of Communication, Climate Change and Environment will invest over €164 million to help Ireland achieve energy efficiency and renewable energy goals, as the State is set to fall short of EU climate action targets by the end of the decade. Additional measures for 2019 include improvements in grants for planting forests and introduction of a pilot scheme to “improve the carbon efficiency of beef production”.