The business sector did not ask much from the Minister going into this Budget; one well-known economics commentator referred to it as a "one trick pony" because, since last year's Budget, the primary focus of business has been on the employers' PRSI costs. These had been dramatically increased with the removal of the employers' PRSI ceiling.
To a limited extent, the case made by employers has found its target with the Minister's announcement of a reduction in the rate of employers' PRSI from 12 per cent to 10.75 per cent.
This reduction will mean savings (as compared with 2001) for employers of €634 (£500) in respect of each employee earning €50,789 (£40,000) a year; the saving increases by €158 (£125) for every €12,697 (£10,000) of additional salary.
However, compared to 2000/2001, when a ceiling of €46,472 applied to employers' PRSI contributions, the 10.75 per cent rate (with no ceiling) means that employers are still paying more PRSI once an employee's earnings exceed €51,875 a year.
This rate of PRSI still represents a significant cost for employers in the high value-added sector which the Government is striving to attract and retain.
However, while an employer's PRSI cost of €8,190 for an employee earning €76,184 a year will be higher than the comparable costs in the US (€6,323) and Canada (€3,428), it is still lower than in the UK (€8,497), the Netherlands (€12,818) and Germany (€15,351).
France has what seems to be an astoundingly high employers' PRSI-type cost of €36,308 for an employee earning €76,184 a year, so perhaps the picture is not as bleak as it might appear.
In last year's Budget the Minister announced a reduction in the standard rate of VAT from 21 per cent to 20 per cent.
At that time, he said the cut "reflected the valid concerns expressed about this country's competitive position in an age of E-Commerce, where differences in VAT rates between different trading partners will influence how successful we are in exploiting this new means of commerce". While the Minister also said that future rate reductions would depend on this first reduction being passed on to consumers, nonetheless it is a huge surprise to see the VAT rate reverting to 21 per cent.
This increase will be felt also by the financial services sector which has only limited VAT recovery. At a time when Ireland is competing for international financial services business to locate in Ireland, our 21 per cent VAT rate compares poorly with our main EU competition: the UK (171/2 per cent), Germany (16 per cent), the Netherlands (19 per cent) and Luxembourg (15 per cent).
The Minister has introduced a current-year basis for the payment of corporation tax.
Until now, a company has had to pay the bulk of its corporation tax within six months from the end of the accounting period.
Under the new arrangements, it will have to pay its preliminary tax one month before the end of the accounting period, an acceleration of seven months.
This is being phased in over a five-year period with the effect that, for accounting periods ending in 2002, only 20 per cent of the preliminary tax must be paid one month before the end of the accounting period (the balance of preliminary tax continuing to be due six months after the end of the period), with 40 per cent coming within the new payment date in 2003, 80 per cent in 2004 and 100 per cent in 2005.
As a further transitional measure, companies with an accounting period ending on December 31st, 2001 will be unaffected this year by the new measure and companies with accounting periods ending between January 1st, 2002 and June 30th, 2002 will pay tax on June 28th, 2002.
The new payment date will have full effect for accounting periods ending on or after July 1st, 2002.
Undoubtedly, this move will necessitate most companies having to re-examine their cashflow projections for several years ahead.
It will also require companies to redeploy resources so that tax projections can be finalised far earlier than before.
One other effect of this measure will be felt by lessors who will now have to re-run all lease evaluations.
Leasing companies price their leases to take into account the timing of their tax payments. If these payments are accelerated, there is the possibility that the pricing of the lease will change to reflect the new tax payment circumstances.
In other words, lessees may find their leases are more costly going forward. In reality, this pricing change may not be significant for most lessees.
A more significant pricing variation may be felt by customers of lessors located in the International Financial Services Centre area. Typically, the vast bulk of tax due by these lessors comes at the end of the lease period and the impact of the changes announced by the Minister may be more pronounced in those circumstances.
However, as none of the customers of these lessors are themselves located in Ireland, the Minister will probably have little sympathy for them.
Interestingly, what the Minister did not announce in his speech (but it is in the published summary of Budget measures), is a relaxation of the restrictions on loss relief for companies.
At present, a company cannot set trading losses against passive income taxable at the 25 per cent rate of corporation tax. For accounting periods ending on or after March 6th, 2002 such losses can be offset, but only for the trading rate value.
So, when the trading rate is 121/2 per cent, if a company has a trading loss of £100,000 and passive income (taxable at 25 per cent) of £100,000, a tax credit of £12,500 (the value of the trading loss at 121/2 per cent) may be set against the tax due on the passive income, reducing the tax to £12,500 rather than the £25,000 due under the present system.
The entire trading loss will then be treated as having been utilised.
In an attempt to boost the flagging construction industry, with effect from January 1st, 2002, the Minister has reinstated tax deductibility for interest paid on borrowings used to finance rented residential property.
This reverses the restriction on deductibility introduced by the same Minister only a few years ago.
Changes have also been announced in the stamp duty rates charged on the purchase of new and second-hand residential property by investors on or after today.
Investors in new or second-hand property costing up to €127,000 will pay no stamp duty (previously 3 per cent), while investors in second-hand property, who currently pay duty at 9 per cent will pay reduced stamp duty on properties costing between €127,001 and €635,000; the rates of duty will vary from 3 per cent to 7.5 per cent.
The saving on a second-hand property costing €317,500 will be €12,700.
Enda Faughnan is national director of tax and legal services, PricewaterhouseCoopers