The Irish government has announced its last ‘austerity’ budget, with spending cuts and tax rises worth £2.1bn plus a wide sweeping programme of small business incentives.
Ireland will exit its international bailout programme by December 2013. The country had one of the deepest recessions in the eurozone, and had sought £72m from the International Monetary Fund (IMF) and European authorities.
Referencing WB Yeats in his financial statement, finance minister Michael Noonan said the Irish had already made too many sacrifices and that the budget was to lay down conditions for a “successful exit from the bailout programme”.
“We are well on course to do this and as the economy continues to grow and jobs continue to be created, we have a fair wind on our backs to achieve our objectives and restore our sovereignty.”
Since recession hit in 2008, successive Irish governments have implemented seven ‘austerity’ budgets, taking €28bn out of the economy in spending cuts and tax rises.
Included in the 2014 budget were a number of measures to support start-ups, SMEs and entrepreneurs.
Tax
Noonan said the government was committed to preserving its low 12.5% CT rate, but given recent controversies such as Apple, it would publish an international tax strategy statement which sets out Ireland’s objectives and commitments to the “global tax challenge”.
“I will also be bringing forward a change in the Finance Bill to ensure that Irish registered companies cannot be stateless in terms of their place of tax residency,” he added.
Interestingly, the Irish journal 'Economic and Social Review' has also recently published a paper on 'Why Ireland is not a tax haven'.
Other measures include:
- CGT exemption on commercial property is extended to 2014
- Tax credits to homeowners carrying out work on homes in 2014/15 under home renovation tax incentive
- Air travel tax to be abolished
- Deposit Interest Retention Tax (DIRT) rises to 41%
- Retention of 9% tourism tax
- No changes to Ireland’s VAT or income tax rate
- Pension levy of 0.6% will be abolished at the end of 2014, but a 0.15% levy will apply on funds held next year and in 2015
Commenting on the tax measures, Padraig Cronin head of tax at Deloitte Ireland, said: "After five years of unrelenting focus on deficit reduction and austerity, there appears to be a conscious attempt by the minister to change the conversation.
"The words jobs and investment loom large and pepper the speech, and combined with numerous references to exiting the bailout programme, it is clear the minister is seeking to deliver a new narrative around the budget this year.”
SMEs/entrepreneurs
As it exits the bailout, the Irish government is very much focussed on growing its numbers of SMEs and entrepreneurs.
In budget 2014, it’s providing a ‘Start Your Own Business’ scheme for entrepreneurs unemployed for 15 months, which includes a two-year exemption from income tax, targeted mainly at unemployed construction workers.
Measures include:
- A CGT relief to entrepreneurs who reinvest proceeds from the disposal of assets on which they previously paid the tax, into a new investment in productive trading activities. The relief will be a tax credit equal to the lower of the CGT paid on the previous asset disposal or 50% of the CGT due on any gain from the future disposal of the new investment. EU state-aid approval is required for this measure
- Implementing R&D tax credit improvements
- Removal of employment and investment incentive from high earners restriction for three years to encourage investors to up to annual limit of €150,000 under the scheme
- Exempt share transfers on the Enterprise Securities Market on the Irish Stock Exchange from the 1% stamp duty that would otherwise apply
- Film Relief scheme to start from 2015
- Increase in cash receipts basis threshold for VAT from €1.25m to €2m with effect from 1 May 2014
The government will also provide a subsidised financial training programme for small businesses.
Welfare & other measures
Unemployment benefits for new claimants under 25 will be reduced to €100, but there will be no changes to other main social welfare payments.
A price of a pint of beer and cigarettes will rise by 10 cents (8p) and wine rises by 50 cents (48p).
Children under five years will now have free GP care. There will be a review of the Irish medical card system, which allows holders to have access to free medical care. The government says it wants to get rid of ‘redundant and illegible’ cards.
Pensions, carers’ allowance and disability benefit, free travel and child benefit remain unchanged, but the €850 bereavement grant is being abolished.
