Budget 2019 arrives at a time when Ireland’s economic outlook is bright. When Minister for Finance Paschal Donohoe announces his second budget in the Dáil on Tuesday, 9 October, safeguarding our progress and insulating our economy from future shocks and global threats will be essential.
While it is still uncertain exactly what will be announced on budget day, Laura Dillon of Casey Stephenson Accountants outlines some possibilities for Budget 2019.
All indications are that there will be a widening of tax bands as appose to a change in tax rates. This means that we’re likely to see an increase in the standard rate band, which will allow middle income – and higher income – earners to pay tax at the standard rate on more of their earnings. At present, people pay tax at a rate of 20 per cent on earnings of up to €34,550, and 40 per cent above that.
An income tax reduction for the self-employed is expected by increasing the earned income credit (currently €1,150) to bring it in line with the PAYE tax credit (currently €1,650).
The Government are continuing work on merging USC and PRSI, therefore only small changes to USC and PRSI are expected this year.
It is expected that there will be some tweaks to USC, either by increasing the entry point for USC or decreasing the USC rates. At present, people start paying USC at a rate of 2 per cent on incomes of more than €13,000.
PRSI may see an increase in order to help pay for welfare benefits. The Department of Employment Affairs and Social Protection made the argument that workers in Ireland pay one of the lowest rates of social insurance contributions in the OECD.
Landlords / Housing
The housing market is one of the biggest issues facing the economy. It has been indicated that Mr Donohoe might make a move to ease the tax burden on landlords by increasing the percentage of mortgage interest which is allowable, up to 85 per cent at present, or allow property tax as a deductible expense. Interestingly, there has been no signs of tax relief for tenants being restored which may be a better alternative given increasing rental prices.
The tax-free parent/child group threshold currently stands at €310,000. An increase in this threshold would be welcomed, in particular with rising property prices. However, the Government has noted that changes to inheritance tax aren’t a priority at present.
With Capital Gains Tax (CGT) at 33 per cent, there are calls that this rate is high and if reduced the tax take may actually increase as transactions may increase.
It is expected that there may be changes to entrepreneur relief to bring it in line with the more favourable UK regime.
The reduced VAT rate of 9 per cent which applies to a range of goods and services principally in the tourism and hospitality sector may be increased to 13.5 per cent. The reduced VAT rate was introduced in 2011 for a three-year period and was extended indefinitely in Budget 2014.
A report published by the Government on the 9 per cent VAT rate in July 2018 noted that there is scope for a rate increase given the demand in the sector and overall prospects within the labour market more generally.
An increase in excise on diesel is considered very likely.
As the United Kingdom continues to unstitch its ties with the European Union, we have an opportunity to position for further business. Ireland is an attractive, highly skilled and motivated country, ready to do business and to help businesses succeed.
However, Brexit also undoubtedly presents a variety of problems for Irish businesses and our economy. Given that a hard Brexit on 29 March 2019 remains a likely outcome, the resulting impact on Irish businesses and our economy needs to be carefully planned for and tangible Brexit-proofing measures introduced.
On 9 October, people and businesses across Ireland will be looking for certainty and assurance. I hope the Minister provides this on Budget day.
Laura Dillon (ACA, CTA)
Head of Taxation
Casey Stephenson Accountants
(This article was published in Tralee Outlook on 4th October 2018)