14 Oct 2015 | 10.51 am
Budget 2016 Analysis: Background
KPMG’s Conor O’Brien provides an overview of Budget 2016
14 Oct 2015 | 10.51 am
By Conor O’Brien, Head of Tax and Legal Services at KPMG
The Minister for Finance introduced the 2016 Budget (the Budget) on 13 October 2015. Further detailed measures will be included in the Finance Bill to be published on 22 October 2015.
Budget 2016 is the first time that we see most Irish taxpayers reaping significant fruits from economic recovery. Following such an extraordinarily difficult financial crisis this is very much to be welcomed and it is to be hoped that this will be the first of many Budgets where relief can be afforded to Irish taxpayers and where Ireland’s economic competitiveness can be enhanced.
Since the financial crisis commenced Irish policymakers have acted resolutely and ultimately very successfully to protect and enhance the competitiveness of Ireland’s attractive corporation taxation regime.
Further enhancements are outlined today – most notably the announcement of a best in class, OECD compliant, 6.25% Knowledge Development Box regime – ensuring that Ireland remains the location of choice for international business.
It has been clear for some time that attention needs to be given to the competitiveness of Ireland’s personal tax regime and in particular to the relatively uncompetitive treatment of Irish based entrepreneurs. No doubt the very tight budgetary position limited room for action during the crisis. Budget 2016 takes advantage of the improved economy to provide some personal tax relief. Key measures include:
• A cut in rates of USC for low to middle incomes
• A reduction in the rate of capital gains tax from 33% to 20% on up to €1million of gains earned by qualifying entrepreneurs
• An increase of the main exempt CAT threshold from €225K to €280K
• A start to equalising the tax credit treatment of the self-employed with that of the employed.
It is to be regretted that the Budget continues the policy adopted last year of denying tax reductions on incomes over €70K per annum. The top 1% of income taxpayers already pay more than the bottom 75% combined. They bear marginal income tax rates which are very high by international standards. There is a wealth of evidence that income tax rates at such levels may well discourage business to such an extent that the total yield to the Exchequer is less than it would be at lower marginal tax rates.
The CGT entrepreneur’s relief is to be welcomed as is the modest increase in the CAT thresholds. However, we believe more needs to be done to reform CGT and CAT and it is to be hoped that further relief can be included in future Budgets.
Ireland is projected to have 6.2% economic growth in 2015 – the highest in Europe for the second year running. With a 2015 Budget deficit of 2.1% of GDP and falling unemployment and national debt ratios the country’s economic prospects are very bright. Sound and sensible taxation policies will be required to secure these prospects.