Deloitte’s tax specialists in Ireland have analysed Budget 2018 and are pleased to provide our perspective on what it will mean for you, your family and your business in the future.
Much like last year, the government is operating against a backdrop of strong and increasingly balanced domestic economic growth, together with continued improvement in employment rates.
However, despite positive economic indicators, the Government has relatively limited fiscal space, and the breadth of challenges and competing demands remain much the same as last year. In an Irish context, this ranges from the undersupply of housing and residential accommodation and continued demand for public services, to the difficulties inherent with securing support from a minority government. Any budgetary decisions must also be considered in light of international uncertainty surrounding Brexit, EU developments and potential US tax and trade reforms.
Notwithstanding these challenges, Budget 2018 significantly increased expenditure across a range of sectors, including capital expenditure. Additional investment measures announced for residential accommodation, transport, improved health services and continued investment in education are particularly welcome. These measures are important steps to address the needs of a growing economy, where there is a critical need to address these areas and build capacity for the future.
There was a clear focus in Budget 2018 on a range of property relates measures, including a significant hike in the commercial stamp duty rate, as well an increase in the vacant site levy. A range of other measures were announced to address the housing crisis, with a view to stimulating supply. It will be important to closely monitor the overall impact of the tax and non-tax measures announced today in terms of outcomes on the commercial and residential property sectors.
A range of welcome measures to help support business, in particular the agri-food sector, and insulate the economy from a Brexit perspective were also announced. The Brexit SME loan scheme and additional supports announced should assist Irish exporters in dealing with future Brexit shocks, and provide them with greater supports to develop new markets.
Other areas that will be welcomed by the business community, include the new share based remuneration scheme for SMEs, ‘KEEP’, which could prove an effective tool for attracting and retaining key staff. The retention of the 9% VAT rate for tourism and hospitality sectors will also come as a welcome boost. However, there was little else within Budget 2018 in terms of the entrepreneurship agenda, with the current CGT entrepreneur relief remaining unchanged, and small positive changes in the earned income tax credit. Therefore, concerns will remain in relation to the ongoing disparity between the employed and self-employed, and the continued burden of high marginal rates. These areas shall require continued focus in the coming years and are consistently cited as barriers to entrepreneurship.
A clear strategy to reduce the personal tax burden on work/earned income remains a key priority for the future, and as such we welcome proposals to raise the standard rate income tax band, and the targeted changes to USC. However, we would also like to see a broader review of the personal tax regime, which continues to be increasingly complex, marked by high marginal tax rates by international standards with a range of inequalities. It is hoped that the consultation in relation to PSRI and USC reform may give a platform to address these broader personal tax issues.
On the corporate tax agenda, last year Government commissioned an independent review of the corporation tax code, with the resulting Coffey Report being published a number of weeks ago. The Minister today announced a public consultation on the report’s recommendations, and this consultation addresses key issues such as the extension of transfer pricing rules, implementation of OECD BEPS and EU ATAD measures, etc. We welcome such open dialogue and look forward to sharing our views on these consultations in due course.
Budget 2018 has sought to ensure that everyone will have a little bit extra in their pockets in 2018, as well as prioritising investment in key areas, including measures to support charities, enhance foreign aid, address climate change, and support SMEs in a Brexit context. Key revenue raising measures to underpin this agenda are sharply focused on a range of property measures, sugar tax, duty on cigarettes, changes to the IP tax regime, but also some notable estimates in relation to tax revenues which will be raised from Revenue audit activity.
We hope you will find Deloitte’s commentary on Budget 2018 to be useful and look forward to bringing you further insights on the Finance Bill when it is released. We invite you to view our articles and some analytics about the Government’s financial position, and also to try our Tax Calculator to work out what personal tax implications this year’s Budget will have for you and your family.
If you have any questions on what the Budget means for you or your business, please do not hesitate to speak with your usual Deloitte tax adviser or any member of the Deloitte tax team.