It’s only a matter of hours now until Michael Noonan gets to his feet at 2.30pm on Tuesday to deliver his budget speech (to be followed with ‘Part II’ on spending measures by Brendan Howlin).
The good news is for the first time since 2007, we’re not facing into a budget guaranteed to leave us worse off (in a few of those years, considerably worse off). But don’t get too carried away. There’s a little bit of money to spread around for next year and you might find yourself a few euro better off each week, but it’ll be nothing like the halcyon days of the Celtic Tiger.
Here’s a list of what we can look forward to from Messrs (no pun intended) Noonan and Howlin:
Income tax
A one percentage point reduction to the top rate of tax from 41% to 40% has been widely leaked. Enda Kenny is very keen on this move as he feels the current marginal rate of tax at 52% (which includes PRSI and the Universal Social Charge) is a deterrent for foreign multi-nationals thinking of establishing here. It also seems that the ridiculously low rate at which people hit the top rate of tax will be raised slightly from €32,800 to €33,800, with more to follow in future years. Likelihood rating: This looks to be tomorrow’s banker.
Universal Social Charge
It’s a hugely unpopular tax and the government is desperate to reduce it. The problem is that it brings in billions of euro every year, so the Coalition will be restricted to tinkering around the edges. That probably means an increase of the threshold at which lower and middle income earners move into the higher rates of USC (there’s three bands 2%, 4% and 7%) is the most likely option.
Likelihood rating: There’s certain to be a change in the thresholds, but a cut in rates seems unlikely. Generally, don’t expect too much. The big question is whether the additional and punishing USC rate paid by the self-employed on earnings over €100,000 will be abolished?
Water charges
The public backlash over water charges has clearly had an impact on the government. The smart money now is on the introduction of a tax refund of up to €100 from water bills. How would this work? Well a family of two adults and two kids is expected to have a water bill of €278 a year. But it’s anticipated the budget will allow them write 20% (€55.60) of that off against tax, reducing their effective bill to €222.40. On the Social Welfare side, there will be a widening of eligibility criteria for the €100 subsidy. Currently, the 415,000 recipients of the Household Benefits Package get it. But it’s expected that others on social welfare, including the long-term unemployed and those in receipt of the fuel allowance, will also be added. Likelihood rating: The people have spoken, on the streets and via the ballot box. The Government has listened – there’ll be changes.
The ‘Old Reliables’
Good and bad news here it would seem. No increase in the price of booze, but if you’re a smoker, the word is the price of a packet of cigarettes will go up by 20c.
Likelihood rating: Seems a certainty.
The VAT rate for the hospitality sector
The reduced 9% rate is seen as one of the Coalition’s success stories, giving a much-needed boost to the tourism sector. Will it be edged back up?
Likelihood rating: If it ain’t broke, don’t fix it. No change.
The Pension Levy
The levy quite rightly caused a massive controversy when it was brought in by Michael Noonan. The phrase double taxation is used far too often, but it certainly holds here and it runs directly contrary to the official policy of encouraging people to take out pensions. Fine Gael TDs in particular would love to see it scrapped, but will Noonan have the money to do so?
Likelihood rating: Unlikely to be dumped, but may well be a cut in the rate from 0.75% to 0.15%.
Capital Gains Tax
Charlie McCreevy famously halved it to 20% and in the following year the yield actually increased sharply. But tough times have seen the rate move back up to 33%. Critics say this is prohibitive to establishing new businesses and to raising capital for start-ups.
Likelihood rating: Won’t be anything dramatic, but Noonan might, repeat might, be tempted to bring it down a couple of points.
Corporate taxes
The Finance Minister is widely expected to respond to the international controversy and huge pressure surrounding the ‘double Irish’. Reports suggest the contentious tax regime will end for new investors from the beginning of next year. Those companies currently availing of it will be given time (perhaps four years) to phase it out, they say. After that companies incorporated here will have to pay tax here too (instead of being tax resident elsewhere), unless there is a double tax arrangement in place.
Noonan is also being tipped to introduce new measures, the main one being a so called ‘Patent box’, which would allow companies to pay a lower tax rate on research and development of new products and services located in Ireland. It would be presented as a move to attract high value research here, but such schemes have also attracted controversy and the Government is likely to seek EU approval for any new system.
Likelihood rating: Something has to give here, but EU approval for the new measures could take a year or more.
Anything else?
Instead of cutting, as has happened in each of the past six years, the government actually has a bit of money to spend this year. Health will get a €500m supplementary budget, with €300m rolled over into next year. Education will get an extra 1,000 teachers and special needs assistants and special incentive measures are being flagged for farmers and builders. €200m is being earmarked for social housing.
Likelihood rating: The positive economic news gives the coalition a lot more room for manoeuvre and there’s an election due in the next 18 months, what do you think will happen?
The sting in the tail/tale
Every year, the majority of the budget is leaked in advance but, every year, there’s also a few measures announced that nobody had envisaged. The same will be true this year. By this time tomorrow, we’ll probably be talking about something that none of us had even considered.
Overall though, there’s a lot less to fear this year – and that has to be progress.
