Minister Paschal Donohoe introduced his 2019 budget to the Oireachtas today which he positioned as being based on a position of economic stability, following the financial challenges of a decade ago. 

The Government has upgraded its forecast for GDP growth in 2018 to 7.5% and 4.2% next year and the Minister stated that employment was up by 380,000 from the low point in 2011.

A budget which had a clear eye on business, Brexit featured throughout his speech and while the Minister said the Government was preparing for a deal, he was also laying plans for a no deal scenario within this budget.  Investment in education was a clear indication by the Government for the need to develop the skillset of Ireland’s workforce of the future.

The sacrosanct position of Ireland’s corporation tax would remain unchanged, while the entry point to the higher rate of income tax for all earners will increase by €750, with two weeks parental leave being introduced. 

€950 million is being invested within the Department of Business, Enterprise and Innovation in 2019 to include a new Future Growth Loan Scheme for SMEs and the agriculture and food sector. 

The biggest news for business, however, was within the hospitality sector with VAT increasing to 13.5% within the industry.

As expected the budget focused considerably on key issues of the day including housing, social welfare, environment and health.  There has already been strong criticism in areas such as the environment, notably with the Government’s decision to row back on plans to increase the carbon tax.

See analysis below.

Brexit effect

·         Minister Donohoe says the possibility of a no–deal Brexit has influenced the decisions made regarding finances.

·         €110 million for Brexit measures across a number of Departments, including funding for essential customs requirements and a range of other targeted measures.

Tax revenues

·         Tax revenues are largely in line with forecasts for this year with €37 billion collected to end September, an annual increase of 5.2%.

Rainy day fund

·          Rainy Day Fund’ to increase the State’s resilience to larger economic shocks.  This will come from surplus corporation tax revenue

Public debt

·         Public debt level amounts to €42,000 for every person resident in the State, one of the highest in the developed world

Parental leave

·         Two extra weeks’ leave to every parent of a child in their first year, with the intention of increasing that to seven weeks in time

Education and skills

·         €10.8 billion allocated to the Department of Education and Skills in 2019 – 1,300 additional posts in schools in 2019.

·         €196 million for capital in Education in 2019, to support the creation of up to 18,000 additional permanent school places

·         €150 million for investment in Higher Education, Further Education and Training, and Research.

Business and SME support

·         €950 million to the Department of Business, Enterprise and Innovation in 2019.

·         New Future Growth Loan Scheme for SMEs and the agriculture and food sector. 

·         Government will bring new legislation to implement the scheme and says it will provide up to €300 million.

Corporation Tax

·         The longstanding 12.5 per cent rate will not be changing.

·         Corporation tax revenue has been growing strongly and a significant part of the growth for this year is due to changes in international accounting standards (IFRS 15). Around €0.7 billion of the 2018 over–performance is estimated as one–off. As these receipts are not expected to repeat next year, they do not feature in projecting receipts for 2019.

Tax avoidance

·         A new Anti–Tax Avoidance Directive (ATAD) compliant Exit Tax regime to come into effect from midnight tonight. The Exit Tax will apply at a rate of 12.5% on any unrealised gains arising where a company migrates or transfers assets offshore, such that they leave the scope of Irish taxation.

Capital expenditure

·         An additional €1.26 billion in capital expenditure is being allocated over 2018 to 2021 to the Department of Transport, Tourism and Sport.

·         €286 million of this will be made available next year to facilitate investment in new transport infrastructure

Corporation Tax

·         Corporation Tax: Mr Donohoe says, “Our longstanding 12.5 per cent rate will not be changing”.

·         Mr Donohoe: “Corporation tax revenue has been growing strongly and a significant part of the growth for this year is due to changes in international accounting standards (IFRS 15). Around €0.7 billion of the 2018 over–performance is estimated as one–off. As these receipts are not expected to repeat next year, they do not feature in projecting receipts for 2019.

VAT

·         VAT in the tourism sector to increase to 13.5% from January 2019. Minister claims this measure will raise €466 million in 2019

Capital acquisitions tax

·         Increase on the lifetime Group a tax–free threshold which broadly applies to transfers between parents and their children from €310,000 to €320,000

Tax relief

·         extend the three–year tax relief for certain start–up companies until the end of 2021

Housing

·         €1.25 billion for the delivery of 10,000 new social homes in 2019

·         Govt are in discussions with various State bodies in relation to land that could deliver another 7,000 homes.

Health

·         additional €700 million toward the health service by way of a supplementary estimate.

·         increase of €1.05 billion in Health funding for 2019.

·         50 cent reduction in prescription charges from €2.00 to €1.50 for all medical card holders over the age of 70

Energy and climate change

·         Climate change measures: €103.5 million for improvements in grant and premium rates for planting forests; Introduction of the Beef Environmental Efficiency Pilot (BEEP) to further improve the carbon efficiency of beef production; €70 million for the Targeted Agriculture Modernisation Scheme (TAMS); and additional funding of €70 million for the Environment and Waste Management Programme.

·         Minister says he is committing Ireland to joining the Paris Collaborative on Green Budgeting

Agriculture

·         Allocating an additional €57 million of current expenditure to the Department of Agriculture, Food and the Marine in 2019.

·         €60 million in current and capital Brexit related supports will be provided to improve resilience in the farm sector.

·         Rural and Community Development: an additional €53 million in capital next year to fund the first round of projects under the new Rural Regeneration and Development Fund.

Sport

·         Sport: €126 million budget across a range initiatives. Retaining the 9% VAT rate for sporting facilities.

Income thresholds

·         the base income threshold is being raised from €22,700 to €26,000, and the maximum income threshold will go from €47,500 to €60,000.

·         The multiple child deduction will increase from €3,800 to €4,300.

·         Increasing the entry point to the higher rate of income tax for all earners by €750, raising it from €34,550 to €35,300 in the case of a single worker.

·         The impact of these changes means that the top marginal rate on incomes up to €70,000 will be reduced to 48.5% and fewer people on incomes around the national average will have any income subject to the 40% rate of income tax

Minimum wage

·         Hourly minimum wage will be increased to €9.80 following the recommendation of the Low Pay Commission;

Conclusion

·         Mr Donohoe has ended his speech with “The Budget I have announced today is a progressive budget with an emphasis on strengthening our national finances.

·         “It is a responsible Budget for a modern and caring Ireland that aims to be at the centre of a changing world.”

RESPONSE AND ANALYSIS

Environment

·         The coalition representing environmental organisations in Ireland says it is shocked by the Government’s decision to row back on plans to increase the carbon tax.

·         In a statement, the Environmental Pillar said it is “deeply concerned by this last minute u–turn”.

·         It said an increase in the tax is vital in order to tackle out of control emissions, protect health and environment, and bring in additional revenue.

·         The decision sends a very clear message to the world and Ireland’s people about the government’s lack of commitment to tackle out of control emissions and “preserve our planet for future generations to come,” the group said.

Housing

·         Fianna Fáil Finance spokesperson Michael McGrath says the Government has failed to get to grips with the housing crisis. He says its performance on housing has not been good enough.

Income tax

·         The Small Firms Association has welcomed the increase in the Earned Income Tax Credit but has expressed disappointment with “the missed opportunity to relieve business costs on small firms and maintain competitiveness as Brexit approaches”

Health

·         The Irish Hospital Consultants Association has said it has grave concern that the 2019 Health Budget is unlikely to address the serious capacity deficits that are delaying the provision of public hospital care to patients, unless urgent capacity needs in acute hospitals are addressed