Corporation tax to plug health overspending gap

Budget to see a dramatic swing towards spending rather than tax reductions

HMBudget1

Overspending by the health service will be €700m in 2018.

 

The Government will use a substantial portion of an additional €1 billion in corporation tax receipts to help pay for health overspending this year.

Minister for Finance Paschal Donohoe announced on Friday that the State will receive €1 billion more in corporation tax this year than had been anticipated due to a technical change in international accounting standards.

Overspending by the health service will be €700 million in 2018. This will be paid for through a number of areas, such as unspent money in other departments, but the bumper corporation tax haul will also plug the funding gap. Total corporation tax receipts are now expected to be €9.5 billion for this year.

Talks between Mr Donohoe and the Independent members of Government, as well as with Fianna Fáil, will continue ahead of budget day on Tuesday.

Overall, the budget will see €300 million of tax cuts and about €3.3 billion of spending increases, a dramatic swing towards investment and spending on public services rather than tax reductions.

Much of the €3.3 billion has already been allocated, with €800 million available for fresh budget day measures. However, the amount of new measures in the budget day package is expected to be more than €1.5 billion due to significant revenue raising measures.

Affordable housing

The programme for government suggested a 2:1 ratio in favour of spending increases over tax cuts; in Tuesday’s budget the ration will be about 11:1.

Fianna Fáil is set to get an affordable housing scheme it had demanded, which will see the State take equity in homes.

A review on the eligibility criteria for social and affordable homes will be undertaken after the budget. The threshold for social housing supports is income below €32,000 per year. To qualify for affordable homes, the income level is below €50,00 for a single person or €75,000 for a couple.

A significant increase in the level of capital spending for social housing is also expected, in tandem with increased powers for councils to build social housing without having to go through lengthy approval processes.

Spending on the housing assistant payment (HAP) scheme is to increase by €160 million.

Income tax

The 4.75 rate of the universal social charge, levied on incomes between €19,300 and €70,000, will fall by 0.25 per cent, and the threshold at which people hit the higher 40 per cent rate of income tax will rise by €750 from €34,550.

The main revenue raising measure is set to be an increase in the special 9 per cent VAT rate for the hospitality sector, although some areas, such as newspapers, may remain at 9 per cent.

If Mr Donohoe chooses not to increase the VAT rate, he would either have to raise excise duties on diesel, bringing it into line with petrol, or raise carbon tax. However, he is unlikely to increase both excise and diesel and carbon tax. Combining VAT rises with either an increase on excise on diesel of carbon tax is also a possibility.