13 Oct 2017 | 05.55 pm
Budget 2018: Overview From KPMG
Download KPMG's analysis of Finance Bill 2017, with Budget 2018 summary
13 Oct 2017 | 05.55 pm
CONOR O’BRIEN, HEAD OF TAX AND LEGAL SERVICES AT KPMG, says that Budget 2018 is cautious in nature
Budget 2018 is the third post-austerity budget in a row. Ireland’s economic recovery has been remarkably impressive. The economy is now enjoying robust economic growth with almost full employment and an end to government borrowing is in sight.
This year’s Budget is cautious in nature. The policy of maintaining discipline in the management of the national finances is to be welcomed. Recent history has shown that government revenues can evaporate during economic bad times, and if spending is built to unsustainable levels during good times the state will be left bereft when the economic tide goes out.
The minister once again reaffirmed Ireland’s enduring commitment to an attractive corporation tax regime for business – a policy that is supported by the vast majority of members of the Irish parliament and which has endured for six decades. In a fickle world, Ireland’s remarkable consistency in its taxation policy towards business is unsurpassed. A great deal of credit is due to Irish policymakers for their consistency and intelligence over this period.
The minister made clear in his speech that he was very conscious of the dangers for the Irish economy arising from Brexit. This was reflected in his decision to retain the 9% VAT rate for tourism – a decision that is most welcome.
Tax Relief Measures
Personal taxation is the second front in the war of tax competition and it is a front that is becoming increasingly important due to the way in which international tax law is evolving. There were a number of welcome personal tax relief measures in the Budget including:
• The 2.5% rate of USC is reduced to 2%
• The 5% rate of USC is reduced to 4.75%
• An increase of €750 in the income tax standard rate band
• An increase of €200 in the earned income credit
• An increase in the home carer tax credit of €100
Capital gains tax treatment to apply to gains on share options granted by unquoted Small and Medium-sized Enterprises (SME) companies to key employees where the conditions of a new Key Employee Engagement Programme (KEEP) incentive are met
The ongoing policy of denying any tax relief on incomes over €70,000 is to be regretted and is compounded this year by the announced 0.3% phased increase in employer’s PRSI. The top 1% of income earners already pay substantially more personal taxes than the bottom 74% of income earners combined. The top 6% of income earners pay about half of all personal taxes in Ireland.
There is a wealth of independent economic research that indicates the dangers of uncompetitive taxation of this relatively mobile sector, particularly in a small open economy. Care needs to be taken not to kill the golden goose.
The minister also announced a number of measures designed to alleviate the shortage in residential accommodation. The reduction from seven to four years of the holding period to qualify for the capital gains tax exemption on certain property assets should be of assistance in freeing up supply. The increase in the stamp duty rate on the sale commercial property from 2% to 6% is considerably less welcome.
It had been hoped that the Budget might contain some improvements to the entrepreneur’s capital gains tax relief and the tax relief for foreign assignees to Ireland. In our view, improvements in these two reliefs could have a very positive impact on jobs and growth in Ireland.
It is to be hoped that such measures might be included either in the Finance Bill or in future Budgets so that Ireland can face its future economic challenges in the most competitive shape possible.