Deloitte Ireland’s tax experts have analysed Budget 2019 and are pleased to provide our perspective on what it will mean for you, your family and your business in the future.
As Ireland’s economy remains buoyant with year-on-year growth, the context and environment of recent budgets is similar for Budget 2019 where the Government is operating against a backdrop of strong and increasingly balanced domestic economic growth, together with continued improvement in employment rates and record tax receipts.
However, similar to previous years, the positive economic indicators are welcomed but there is an awareness to the many challenges the island of Ireland will be facing over the short to medium term and so the Government have continued to assert prudence on many policy decisions. In June 2018, we learned via the Summer Economic Statement that the Government wanted to move away from using the term fiscal space which was a real acknowledgement of the breadth of challenges and competing demands on our economy which is a familiar position the economy has been facing in recent years. In a domestic context, this ranges from the continued undersupply of housing and residential accommodation and increasing 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 the impact of US tax reform and escalating trade disputes that have evolved considerably throughout 2018.
Notwithstanding these challenges, Budget 2019 along with ‘Ireland 2040’ has significantly increased expenditure across a range of sectors, including capital expenditure. Additional investment measures announced for residential accommodation, transport, climate, agriculture, rural Ireland, 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 and urgent need to address these areas and build capacity now and for the future.
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. It is crucial that these measures will Brexit proof our economy and withstand the many challenges that will arise from the UK leaving the EU next March. As a continuation from the Brexit SME loan scheme, the future growth 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 amendment to the share based remuneration scheme for SMEs, ‘KEEP’, which could prove as an even more effective tool for attracting and retaining key staff. The amendments to market value limits allow for a more attractive offering to key staff coming to Ireland and is in line with Ireland’s broader international tax strategy. The extension of the three year start up relief for certain companies has been extended until the end of 2021 which is welcomed.
It was unfortunate not to see the retention of the 9% VAT rate for tourism and hospitality sectors. 2017 was officially the best ever year for tourism for the island of Ireland with 10.65 million visitors to our shores. The 9% VAT rate allowed Ireland to provide competitively priced services to visitors and we hope the increased VAT rate doesn’t make Ireland too expensive for potential holidaymakers and visitors from both home and abroad. However, there was little else within Budget 2019 in terms of the entrepreneurship agenda, with the current CGT entrepreneur relief remaining unchanged. 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.
On the corporate tax agenda, an exit tax rate of 12.5% on unrealised gains will apply from midnight 9 October 2018 on companies migrating residency from Ireland. Many companies would have been able to claim an exemption from tax prior to this change. This amendment to exit tax rules in Budget 2019 was unexpected considering that Ireland is not required to bring their domestic exit tax rules in line with EU ATAD standards until 1 January 2020 and this was a timeline many companies were working towards from a planning perspective. Minister Donohoe has confirmed that Finance Bill 2018 will provide for the new Controlled Foreign Company (CFC) rules that will be effective in our law from 1 January 2019.
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. Budget 2019, given the strong economic performance, has sought to ensure that everyone will have a little bit extra in their pockets in 2019, 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. The full restoration of the Christmas bonus for all social welfare recipients is an indication of the advancements Ireland’s economy has made since 2008 and this restoration is welcomed. The increase to the inheritance tax Parent/Child group threshold is also a welcomed move given the increasing value of assets and would encourage the expansion of this band over the coming years. The Group A tax-free threshold has increased from €310,000 to €320,000. Key revenue raising measures to underpin this agenda are sharply focused on the increased hospitality VAT rate, duty on cigarettes, betting duty, and a diesel surcharge on VRT but also some notable estimates in relation to tax revenues which will be raised from Revenue’s updated PAYE system.
We hope you will find Deloitte’s commentary and analysis on Budget 2019 to be useful and look forward to bringing you further insights on the Finance Bill when it is released on 18 October 2018. 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.