Budget 2019 attempted to spread largesse from a fairly small pot as widely as possible. To make that easier, Minister for Finance Paschal Donohoe raised an extra €700 million in new taxes.
There was never going to be enough cash to deliver any group’s wish list in full but, as always, some sectors feel more hard done by than others. So who were the winners and losers of Budget 2019?
Of the losers from Tuesday’s budget, the sorriest lot fell to hotels, restaurants and other tourism businesses, which finally lost their precious 9 per cent VAT rate. Under pressure to fuel spending, the Minister pushed it back up 50 per cent to to its old level of 13.5 per cent, raising €466 million.
It has sparked a furious backlash from the hospitality sector, especially outside booming Dublin. Minister for Finance Paschal Donohoe had barely sat down after his speech when the Restaurants Association of Ireland called for the head of his colleague, Shane Ross, the Minister for Tourism.
Visitor numbers may be at record levels but the rise in VAT could potentially be very damaging for individual hotel and restaurant operators. Excluding alcohol sales (which always attracted higher VAT), it will knock up to 4.5 percentage points off the net profit margin of any operator who decides not to pass on at least some of the increase to customers.
Margins in what is a competitive sector can be wafer-thin, especially in rural areas. Many businesses now face Hobson’s choice – push through either a hike in their prices or accept a cut in profits or, more likely, an unpalatable combination of the two.
Industry sources concede it was the runaway success of the Dublin hotel market, where occupancy rates regularly breach 90 per cent despite record room rates, that drew fire on to the sector. Dalata, which owns the Maldron brand, is the biggest player in the city.
“In 2012, the first full year of the low VAT rate, the take was €630 million. Last year, the total take was €1.1 billion. Nobody ever mentions that,” said Pat McCann, chief executive of Dalata.
Dalata expects to be able to pass on the increase to corporate clients who make mass bookings, as its contracts have always allowed for variations in VAT. But McCann doubts that many rural hoteliers are in the same boat.
“Tourism was a shining light for Ireland in the darkness of recession, and now the industry feels abandoned.”
John O’Sullivan’s Hodson Bay group owns three properties west of the Shannon: two in Athlone and one in Galway. The VAT rise is, he says, an “absolute disaster” for the industry outside the capital.
“Ours are performing well but many rural hoteliers don’t get a return on their investment,” he said. “We’re providing decent jobs in towns that need them. Tourism is replacing agriculture as a rural employer.
“What do I tell all the weddings that I have already booked and priced for next year? Sorry, guys, but I have to raise the cost now? That can’t happen. We can’t pass it on.”
Irish stock investors
Investors in the Irish stock market – where shares have fallen more than 11 per cent so far this year – had been hoping that Budget 2019 would give them some relief. Donohoe started a public consultation last year on the future of the 1 per cent stamp duty on trading in Irish company shares.
There had been anticipation that the Minister would move to at least lower the rate to match the UK’s 0.5 per cent levy as he had put the review in the context of positioning the Republic for Brexit.
However, the almost €400 million the tax currently generates for the exchequer appears to have been too much for the Government to give up, especially as it has had to rely on unpopular measures such as the tourism VAT hike.
Paddy Power Betfair
Budget days are becoming something to be feared at Paddy Power Betfair’s headquarters in Clonskeagh in Dublin 4.
Shares in the bookmaker have fallen by more than 6 per cent in London since Donohoe announced plans to double the Republic’s betting tax to 2 per cent and raise the duty on commission earned by betting intermediaries or exchanges from 15 per cent to 25 per cent.
The stock is now trading at lows not seen since Paddy Power and Betfair announced their plans to merge three years ago. The group, led by chief executive Peter Jackson since January, has said the measures will cost it almost €23 million.
“Irish authorities have been quite lenient up until now on gambling companies relative to other jurisdictions – but they’re tightening up,” said Darren McKinley, an analyst with Merrion Capital.
The burgeoning private residential sector’s plea that it is part of the solution and not the problem when it comes to Ireland’s housing crisis seems to have received a favourable hearing from Government.
Fears of higher stamp duty on the sector in the budget proved unfounded, a relief to Margaret Sweeney, chief executive of Ires, Ireland's largest private landlord with more than 2,600 apartments.
“We believe the current approach is appropriate and will underpin the further investment that is required through 2019 and beyond to deliver the volume of apartment and house building which is clearly required,” said a spokeswoman for Ires.
Acquirers of apartment blocks avoided a move by Donohoe last year to triple stamp duty on commercial property deals to 6 per cent. That’s because deals in the sector are typically structured so that apartments in a scheme are sold individually. Residential property sales worth less than €1 million are only subject to a 1 per cent stamp duty.
It had been speculated that Donohoe would target funds and companies buying more than 10 or 15 units with a higher duty rate – addressing a popular view that investors were elbowing first-time buyers out of the market.
Still, Killian O’Higgins, managing director of WK Nowlan Real Estate Advisers, warned it would be prudent for large private residential investors – who spent almost €390 million buying up apartment blocks last year – to await for the publication of the Finance Bill next week before breathing easily again.
Film and television industry
It wasn’t a runaway box office hit of a budget for Ireland’s film and television business, but it was very far from being a flop.
Screen Ireland is now more than halfway on its path to recovering the €20 million capital budget it once had to invest in film, television and animation projects. Recession budgets had whittled this purse by 44 per cent to €11.2 million; in 2019, it will reach €16.2 million.
With the organisation that represents film and television production companies, Screen Producers Ireland, it welcomed what many felt was the overdue extension of the section 481 corporation tax credit for film, television drama, animation and creative documentary made in the State. The sunset clause on this 32 per cent tax credit has now been extended by four years to December 2024.
There was also the intriguing addition of an extra 5 per cent "regional uplift" to the tax credit, which will taper out after four years. It will deliver a new spur to production in areas designated under the State aid regional guidelines. Limerick's Troy Studios, where the Netflix series Nightflyers recently completed production, should be a key winner here.
There was no raising of the expenditure ceiling on which it can be claimed above €70 million. A report by Olsberg SPI and Nordicity had recommended a cap of €100 million, saying that “major tentpole productions” usually cost at least this much to make.
RTÉ was also a winner. It received an €8.6 million rise in funding, largely through a €5 million uplift in the sum the Department of Social Protection pays the Department of Communications to cover (most of) the cost of the free television licence scheme.
The boost to RTÉ fell well shy of the Broadcasting Authority of Ireland’s recommendation of an immediate €30 million surge in annual funding, but this was never going to happen. And €8.6 million is more than it has got from the budget in a long time.
When it came to the impact of the 1 per cent vehicle registration tax (VRT) surcharge on diesel cars, the official voice of the motor trade didn't pull any punches. "This was a poorly considered measure that appears to have been included to give the perception of an environmental focus in the budget," said Alan Nolan, director general of the Society of the Irish Motor Industry.
Nolan is normally a voice of restraint compared to many of his members. Yet, for all the good optics about promoting the change to alternatives like hybrids and electric, he was clear that the bigger impact will be on rural and business buyers for whom diesel is still the better environmental choice.
Diesel was always in the Minister’s sights. While a speculated on rise in excise on diesel fuels never materialised, the international campaign against diesel engines and their emissions, which harm air quality, was never going to escape his attention.
The issue for the trade is that it’s not the only price impact in the pipeline. New EU emissions tests, to provide more real-life data, come into force on new cars from September 2019. As our tax regime is based on these official emissions figures, new car prices are expected to rise by an average of €450 unless the bands are changed in Budget 2020. The 1 per cent surcharge will add an average of €400 from January to a new diesel car’s price.
The problem for an industry already moving away from diesel is managing the transition. We are witnessing a motoring revolution with mainstream electric cars, autonomous driving technology and car-sharing schemes that offer alternatives to ownership.
Many motorists cannot afford to keep pace with the changes and have to opt for older models. Having tax and road traffic policies keep pace with the new motoring tech may be admirable, but it risks leaving a massive cohort of motorists behind.
As for hybrids and electric cars, while the incentives remain – including the important 0 per cent rate of BIK on the first €50,000 of an electric car’s list price – the choice of vehicles is relatively limited.
For small and medium enterprises (SMEs), Budget 2019 contained some treats, although they’re being viewed with caution.
Included are a future growth loan scheme for SMEs and the agri-food sector, as well as more generous terms for the unloved key employee engagement programme (Keep).
“The devil is in the detail,” said Sven Spollen-Behrens, the director of the Small Firms Association. The previous Brexit loan scheme, for example, didn’t encourage him, with relatively low take-up.
“Our businesses are screaming for working capital. It isn’t necessarily going to be Brexit-related so this could be good, but we’ll have to wait and see,” said Neil McDonnell, chief executive of the Irish Small and Medium Enterprises Association.
Last year’s budget looked promising but the Finance Bill dampened expectations somewhat, SME business leaders say. And that’s one of the reasons there’s initial scepticism surrounding Keep.
McDonnell says there’s yet more confusion after the Minister’s speech on Tuesday. “He used the expression that the limit has been lifted to lifetime. Does that mean there’s a lifetime maximum you can gain under this scheme?”
More egregious was the small increase in the earned income credit of €200 when the gap between self-employed workers and PAYE workers was €500.
“That was such a petty, nasty little measure,” McDonnell said. “There’s no justification for that sort of discrimination. If we were talking about people in the public sector, there’d be marches on Kildare Street.”
Spollen-Behrens noted that the full cost of equalising the credit would have been just €37 million.
“If you compare [the strategy] for foreign direct investment and multinationals, we still don’t have a clear coherent strategy for [SMEs].”