From millennials to baby boomers almost all generations benefit but savings are muted
about 5 hours ago
Fiona Reddan
There may have been something for everyone in yesterday’s budget, but as the experience of our budget families show, some gained that little bit more than others. Indeed one-income families will find themselves that little bit ahead thanks to the increase in the home-carer credit, while elsewhere, the main savings are to be found in among middle income earners or the “squeezed middle”.
Low income workers however, such as our Generation Z student Mariusz, who earns €13,500, will have found little to delight in the budget. While low income workers on the minimum wage are set to benefit from an increase in the wage of €0.30 to €9.55 from January 2018, the savings on the tax front are limited, given that many low income workers will find themselves out of the tax net. As the experience of Mariusz shows, for workers like him, who aren’t on this wage, the benefits of this budget are limited.
Millennials may be happy that no change has yet been made to the Help to Buy scheme, which means that they may still be able to avail of the deposit towards the cost of a new house, but for those renting, the Government’s decision not to extend rent relief may disappoint.
Parents of young families will also likely be disappointed with the Government’s plans for the affordable childcare scheme, which have still to deliver on the promises made this time last year.
When it comes to our Generation X families, those who bought their properties back in the boom will likely be pleased with the decision to keep mortgage interest relief – but taper it – to 2020, but will also bemoan the lack of a decent increase in childcare help or child benefit.
One of the bigger winners in this year’s budget is our single income family, who will gain an additional €100 thanks to the increase in the home carer’s tax credit.
On the other hand, while our baby -boomer Sam, who is self-employed, will also benefit on the tax credit front, thanks to the increase in the earned income credit, he is still stuck with the 3 per cent surcharge on his income over €100,000. This means that while those earning less than €70,044 have seen their marginal rate drop below 49 per cent, he still has to pay a top marginal rate of €52 per cent.
Our pensioners are undoubtedly pleased about the €5 increase in the state pension which kicks in from next March; they may be annoyed however that there was no announcement on inheritance tax thresholds, despite a previous commitment to increase the threshold further.
Some of the detail is yet to come however, with details perhaps emerging in next week’s Finance Bill on changes to Dirt and the deduction for pre-letting expenses for landlords.
Overall, nearly everyone has got a little bit to cheer about come January, but no-one is yet back at their 2008 after-tax income levels; and may not be for quite some time yet. Indeed as one of our families found, their upcoming refund from having paid their water charges is actually going to be greater than their benefit from this year’s budget.
Generation Z: Mariusz
Mariusz is a 19-year old student from Clonmel attending University College Cork. He works part-time in a bar to fund college, and full-time over the summer, but with rising rents and a hefty annual contribution fee, he is struggling to make ends meet. His annual earnings are € 13,500 per annum.
Mariusz notes that his net monthly income in 2018 more or less remains the same at € 1,117. If he was on the minimum wage he would have benefited in the increase in the payment from January 2018.
Mariusz is disappointed that the USC entry level has remained static and the private rented accommodation relief was not extended any further. However he hopes the vacant site levy will increase the amount of student accommodation being made available. He is happy to hear about the extra funding into education.
Millennial: Laura
Laura is a single 27-year old who lives and works in Silicon Docks in Dublin, where she works long hours in sales for a US tech company, and enjoys a busy social life. Laura earns € 38,000 per annum.
When she looks at her payslips from 2017, her net monthly income was € 2,516 and this will increase to € 2,533 in 2018. In comparison to 2017, she is better off by € 17 per month in 2018.
Laura welcomes the reduction in the USC rates and the increase in the standard rate band as this leads to the increase in her net monthly income. However, she had hoped the changes would have had a greater impact on her net monthly income.
She is happy to see no change in the VAT rate in the tourism sector, and is hopeful that the proposed increase in the vacant sites levy may increase the availability of rental accommodation.
Millennial: Sarah and Sean
Newlyweds Sarah and Sean are in their early thirties. They live in Kilkenny and are saving hard to buy their first home. Since the arrival of baby Sadhbh, Sean has cut his hours to a three-day week so he can mind the baby, while Sarah has returned to work full-time. Their combined annual income is € 60,000.
Sean did a comparison of what their net monthly income was in 2017 and what it will be in 2018. Their net monthly income in 2018 will be € 4,231 as opposed to € 4,218 in 2017, resulting in an increase of € 13.
Sean and Sarah are happy with the changes to the USC rates, however, as they both earn under the respective standard rate threshold, the increase has no impact for them which is disappointing. Sean and Sarah note that having paid their water charges, their upcoming refund will actually exceed the benefit of the budget.
Generation X: Arthur
Arthur is a single father in his late thirties. He lives in Galway with his daughter Emily, aged 4, and son Harry, 6. Arthur works as a recruitment agent and earns € 39,000 per year.
Arthur is going to take home € 21 more per month in 2018 compared to 2017, with monthly income of € 2,780 in 2018 compared to € 2,759 in 2017.
Arthur is happy that he stopped smoking cigarettes when his son was born, as he saving at least € 12 per day (as he used to smoke a 20 pack a day).
He is delighted to see an increase in his net monthly income, however, he is disappointed that there is no change to the single parent family tax credit and no increase in child benefit.
Generation X: Colleen and Alanna
Colleen and Alanna have been living as a couple for over ten years and live in south Dublin with their two children, aged 9 and 11. They formally celebrated and registered their civil partnership in January 2011, following the passing of the Civil Partnership Act. Colleen works as an accountant earning € 90,000. Alanna does not work outside the family home.
Having looked back on her payslips from 2017, Colleen finds that she will be better off on a monthly basis in 2018 than she was in 2017. Her net monthly income was € 5,052 in 2017, compared to the projected € 5,087 in 2018.
Colleen is happy with the reductions in the USC rates although she feels they could have been more significant. The couple are delighted the home carer tax credit has increased by € 100. Colleen is also happy to see that there has been no increase in the excise duties for petrol as she commutes to work by car each day.
Alanna is disappointed to see that there was no increase in child benefit for the second budget in a row, when all weekly Social Welfare payments will increase by € 5 from the end of March 2018.
Baby boomer: Sam
Sam is married, in his early 60s, and lives in the Dublin suburbs with his wife Rachel. Sam is a self-employed IT contractor.
He has three children, one of whom still lives at home. Sam’s annual income over the last number of years was € 175,000. Sam also owns a rental property in Ranelagh, which generates € 2,500 in net rental income per month. Additionally, he pays mortgage interest of € 500 per annum in respect of the property.
He has looked at the impact successive Budgets have had on his income. His accountant has given him an estimate of his likely liability for 2018, which will show net monthly income for the year of € 8,236 after the deduction of taxes, PRSI and levies. When examining his previous years’ tax assessments, he found that his ‘net’ monthly income for 2017 was € 8,193, therefore representing a net monthly income increase of € 43 in 2018.
Sam is happy that the earned income credit will increase by € 200 per annum in 2018. He is also happy to know that he also benefits from the slight reduction in the USC rates. However, he is very disappointed that the 3 per cent surcharge for self-employed individuals with income over € 100,000 will remain for 2018. He is disappointed to see no increase in the inheritance tax thresholds.
Sam is interested to see the detail of the upcoming Finance Bill regarding the proposed deduction for pre-letting expenses for landlords.
Baby boomer: Amelia
Amelia is 56 and lives in a three-bed semi-detached house she owns in Co. Laois. She works as a nurse in Port Laoise with an annual salary of € 46,000. Amelia has boosted her income by € 10,000 a year thanks to the rent-a-room scheme, which she started in 2014. This is well within the tax-free limits so Amelia receives this amount, tax free on top of her salary.
In 2017, her net monthly income was € 3,686 and this will increase to € 3,708 in 2018, representing a net monthly increase of € 22.
Amelia is happy to see her net monthly income come closer to that before the recession. She is also very happy to hear no changes to the rent-a-room scheme as this is a vital element of her monthly income. She hopes that the additional investment in frontline medical services staff will help ease her heavy workload.
Pensioners: Jack and Bridie
Jack and Bridie are married and living in Cork. They own their family home having paid off their mortgage. Jack and Bridie are in their late 70s. Jack has an occupational pension of € 35,000 and also receives deposit interest and the State Contributory Pension. Bridie receives a pension as a qualified adult. Their total taxable income is € 60,000 per annum.
Whilst cleaning out a drawer in their home, Jack came across some payslips and tax statements and noticed how the various tax changes have affected both Bridie and himself during the period. Their total combined net monthly income in 2018 will be higher than it was in 2017. In 2017, their net monthly income was € 4,436, while in 2018 it will be on average € 4,462 per month. This is an increase of € 26 per month.
Jack and Bridie are happy about the decrease in the USC rate but are even happier that the state pension will increase by € 5 per week from the end of March 2018. This will help bridge the gap for them as they have had to dip into their savings over the past while and their income from deposit interest will decrease in 2018.
Jack & Birdie are delighted to hear there will be more nursing and Garda recruitment as their grandchildren are studying in these fields.
They are disappointed to see no increase in the inheritance tax thresholds.
http://www.irishtimes.com/business/economy/budget-2018-what-the-changes-mean-for-you-and-your-family-1.3251327
Analysis: Government left hoping that threat of Brexit does not upset the sums
about 7 hours ago
Updated: about 5 hours ago
Cliff Taylor
Finance Minister Pascal Donohoe TD speaks to Fiach Kelly of The Irish Times outside Leinster House following the delivery of his Budget 2018. Video: Bryan O’Brien
Gains of €5 a week for single middle income taxpayers – or €10 a week for double income couples – are not going to add noticeably to spending in the economy next year.
For some weeks now the Government has been trying to figure out how to stop Budget 2018 falling completely flat. The only way to do so was to raise a big chunk of new revenue to pay for some rises in spending and at least some income tax cuts.
In the event the €830 million in new revenues raised by Paschal Donohoe, added to the existing room for manoeuvre, allowed for a package of €1.2 billion, while still staying within EU budget rules.
In the end all the circles were squared and all the various parties needed to get the budget through the Dáil got their pound of flesh. But this did leave the extra Budget cash spread thinly.
Like all Budgets, this one is a bet on economic growth, which the Government expects will continue to exceed 3 per cent next year and the year after. With Brexit and other external threats in the wings, there is some risk here. The Government was correct to stay within EU rules and deserves credit for not trying to get round them. But we do need a strategy in case Brexit goes wrong and hits growth and tax revenues. While we will meet EU borrowing rules next year we will still, on existing forecasts, be adding to our national debt both next year and the year after.
The decision to move €1.5 billion from one Government agency to another new rainy day fund does not really advance our preparations in this regard. The Government also needs to clarify that all the revenue raising measures will come in on target, particularly the rise in commercial stamp duty where the €376 million revenue pencilled in is being questioned by the industry.
Brexit
Money does need to be found to boost investment in the economy – crucial to our competitiveness and growth prospects. The Government is planning a significant rise in its capital programme. Can we afford to do this, and cut taxes at the same time?
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Politics seems to demand that we don’t really examine such questions and that annual giveaways of at least €1 billion are now almost a budget requirement. It all created a bit of fizz on the day, as the package was bigger than anticipated until recently.
Inevitably, most of the initial focus is on tax cuts, as these can be counted in euro and cent. However, in the year ahead, the bigger political factors will be whether growth can be maintained and whether the Government can deliver on key public services – particularly in the crunch areas of housing and health. The glow of the €5-a-week budget will quickly fade, but the debate about health and housing will rage on.
The cuts in income tax and USC will be welcomed by taxpayers, many of whom struggle to balance the bills due to high rents or mortgages, but the net gains are limited. An additional €5 a week for single middle income taxpayers – or €10 a week for double income couples – are not going to add noticeably to spending in the economy next year.
Landmine
In any case the hard work for the Government lies ahead. There does not seem to be any immediate political landmine in the budget – provided the Government can show that the revenue raising measures add up. Instead, the Government faces the twin issues it did beforehand – health and housing – and the really difficult task of delivering and managing change.
Announcing a 5 per cent increase in the health budget next year, the minister made the customary, almost plaintive, call on the department of health and the HSE to deliver value for money and better services. But it remains to be seen whether the Government can make any sustained progress here. It has promised a significant rise in employment in health – and in the gardaí and education- which, if delivered, will be politically significant.
Housing was one of the main themes of the budget, and the Government is trying to turn the dial via measures to encourage developers to bring land more quickly into development. Again, we have seen in recent months just how complex and multi-faceted this problem is.
It has been clear for some time that politically the budget would in some ways be a trailer to the big announcement of capital spending plans for infrastructure for the next decade due before the end of the year. Paschal Donohoe has vowed to avoid the mistakes of the past. With State investment spending due to more than double from €3.8 billion a year in 2015 to €7.8 billion by 2021, an economic imperative is that the money is spent where it can have the biggest economic and social impact, and not in response to political or lobbying demands.
The investment plan was set by the minister in the context of Brexit, which was also a theme running through the budget speech. We can’t be like rabbits in the headlights waiting for Brexit, of course.
But despite the many references to Brexit, the Government has crossed its fingers, hoping that it doesn’t make too big a hit on economic growth. Here’s hoping they are right.
http://www.irishtimes.com/business/economy/cliff-taylor-budget-2018-tried-to-be-all-things-to-all-lobbies-but-it-is-spread-thinly-1.3246876
Cost of 20 cigarettes will increase by 50 cents but duties on alcohol remain untouched
about 17 hours ago
Updated: about 5 hours ago
Fiach Kelly, Steven Carroll
Minister for Finance and Public Expenditure & Reform, Paschal Donohoe TD delivers the 2018 budget to Dáil Éireann.
Budget 2018 will see between €1.1 and €1.2 billion of new spending and tax cuts, split 2:1 in favour of spending. Photograph: Getty
Paschal Donohoe has delivered his maiden budget speech as Minister for Finance and set out the first set of budgetary measures from the Government under the leadership of Taoiseach Leo Varadkar.
Mr Donohoe announced some €1.2 billion in new spending and tax cuts, split on roughly a 2:1 basis in favour of spending.
He said total voted expenditure next year would amount to more than €60.9 billion, which was some €12,700 for every person living in the State. Some €55.6 billion has been allocated to current expenditure (a 3.4 per cent increase) as well as €5.3 billion for capital spending (up 17 per cent).
The Minister said he expected continued economic growth which was projected to be 4.3 per cent this year and 3.5 per cent next year. Unemployment is at 6.1 per cent at present and the Minister said he expected it to fall to 5.7 per cent in 2018, having been at 15 per cent at the height of the recession. This, he said, is close “to the level considered to represent full employment” in Ireland.
So how do today’s measures affect you?
Personal taxation and welfare measures:
*The point at which people enter the higher, 40 per cent rate of income tax will rise from its current level of €33,800 by €750 for a single person to €34,550.
*The 2½ per cent Universal Social Charge (USC) rate is being cut to 2 per cent and the ceiling for this new rate is rising from €18,772 to €19,372. Mr Donohoe said this was ensure that full-time workers on national minimum wage of €9.55 an hour do not pay the higher rates.
The 5 per cent rate of USC is being lowered to 4.75 per cent, which the Minister said would reduce the top marginal rate of tax on income up to €70,044 to 48.75 per cent.
*All social welfare payments, including the State pension, will increase by €5, with the increased payments kicking at the end of March. The social welfare Christmas bonus will be paid at 85 per cent of its usual rate.
*For the self-employed, the earned income credit will increase by €200, bringing it to €1,150 per year from next year.
*The home carers’ tax credit will increase by €100 to €1,200 per year.
*Prescription charges are to be reduced for everyone with a medical card under the age of 70 from €2.50 to €2 per item and the monthly cap for prescription charges decreased from €25 to €20. The threshold for the drugs payment scheme falls from €144 to €134.
*Other welfare increases include One Parent Family Payment and the Jobseekers’ Transitional scheme rising by €20 per week; the threshold for receipt of the Family Income Supplement rises by €10 per week for families with up to three children; and the weekly rate of the qualified child payment is going up by €2 per week. There will be a Telephone Support Allowance of €2.50 per week for those in receipt of both the Living Alone Allowance and the Fuel Allowance.
Old and new reliables:
*The price of a packet of 20 cigarettes and other tobacco products will increase by 50 cent – meaning, on average, a 20 pack will cost about €12 and a 30g pouch of tobacco will be more than €15.
* Duties on alcohol have been left unchanged.
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Paschal Donohoe’s speech
*A tax on sugar sweetened drinks will, from April, be applied at a rate of 30 cent per litre on drinks with 8g of sugar per 100ml. A reduced rate of 20 cent per litre will apply on drinks with between 5g and 8g of sugar per 100ml.
*There will be no change to the taxes on diesel or petrol.
*The State’s 12.5 per cent Corporation Tax Rate remains unchanged.
*The VAT rate for the tourism and services sectors is being left unchanged at 9 per cent.
* The VAT rate on sunbed services increases from 13.5 per cent to 23 per cent in a move the Minister said was due to the link to cancer from the use of sunbeds.
Housing and property:
*The Government is allocating more than €1.8 billion for housing next year with the Minister saying some 3,800 new social houses would be built in 2018 by the local authorities and approved housing bodies.
* Mr Donohoe said there would be an additional €149million for the Housing Assistance Payment, which would enable an additional 17,000 households to be supported and accommodated next year, and a €116 million spend on homelessness, up by €18 million on this year.
*The Minister said he was providing a further €500 million for direct building which he hoped would lead to an additional 3,000 new build social houses by 2021 in addition to the existing 47,000 target.
*A new agency, Home Building Finance Ireland, is being created to use Nama’s experience and provide cheap loans to developers. It will be funded by monies from the Irish Strategic Investment Fund (ISIF) to the value of €750 million.
*Mr Donohoe said the stamp duty on non-residential property was lowered to 2 per cent to stimulate the market and “it worked” and now it is being increased to 6 per cent from midnight tonight.
He said this was still well below maximum rate of 9 per cent charged between 2002 and 2008. A stamp duty refund scheme will be available to house builders subject to certain conditions.
*The controversial help to buy scheme of grants for first time buyers, which offers an income tax refund of up to €20,000 for buyers of newly built homes, is being retained.
*The Government is maintaining consanguinity stamp duty relief at 1 per cent for inter-family farm transfers for a further three years.
*Mortgage interest relief for people with loans taken out in period 2004-2012 is being continued to 2020 but at just 75 per cent the rate in 2018, 50 per cent in 2019 and 25 per cent in 2020.
* The seven year period owners must retain qualifying assets to enjoy full relief from Capital Gains Tax is being reduced to four years.
*The vacant site levy, due to take effect from 2019, will increase from three per cent to seven per cent in 2020.
Expenditure:
* Mr Donohoe said the health budget would increase by €680 million to €15.3 billion next year, an increase of 5 per cent. He said some of this would be used to recruit an additional 1,800 staff across the acute, mental health, disability, primary and community care sectors.
* The allocation for Tusla, the child and family agency, will be almost €754 million, up some €40 million.
* The National Training Fund levy is being increased next year from 0.7 per cent to 0.8 per cent which the Minister said would provide €47.5million of additional funding for the higher and further education sectors. The levy will rise to 0.9 per cent in 2019 and 1 per cent in 2020.
* The Pupil Teacher Ratio at primary level will be reduced to 26:1 from 27:1.
* The Minister announced a €23 million increase in the Department of Foreign Affairs and Trade’s budget, with some €13 million of this going into increasing the overseas development aid budget.
* An additional 800 gardaí are to be recruited next year and a further 500 civilian staff are also to be brought into the force, the Minister said.
*A Brexit loan scheme of up to €300 million is being made available to SMEs, including food businesses, to help with short term working capital needs. The move is supported by European Commission, European Investment Bank and others.
*The Minister said he expected to raise additional revenues of €830 million as a result of the measures announced in Budget 2018, bringing the total package of new spending to €1.2 billion. Some €898 million of this would be going to the expenditure side and €335 million would be used to cover tax moves.
In conclusion:
Mr Donohoe said budget day offered an opportunity “to reflect on a journey made, to recognise both what our country has achieved and what we want to achieve” in the future.
The aim of the measures was to “safeguard our national finances and help to rebalance our economy; promote fairness and provide for sustained improvements in people’s lives; and make sensible and long-term investments to benefit us now and into the future”.
The Minister said there was a “lengthy” list of potential external risks to the economy including Brexit, potential changes in US trade policy and various geo-political threats that could have impacts on the global economy.
He said balancing the State’s books next year would mean that “we can devote additional resources to tackling the needs of the Irish people and the economy in 2019 and subsequent years”.
“We are increasing our current spending in line with how we expect the economy to grow so, that we can continue, step by step, to deliver sustainable improvements for all,” he said. “And where we are spending more, on our schools, hospitals, homes and public transport we do so to bring a secure, productive and fairer future that bit closer.”
http://www.irishtimes.com/business/economy/budget-2018-main-points-everything-you-need-to-know-1.3250539
Minister silent on list of measures that Government and Department of Finance had flagged ahead of the budget
about 5 hours ago
Dominic Coyle
An increase in excise duty on diesel was just one of several measures that had been widely expected to feature in Budget 2018 but which ultimately got no mention. Photograph: Dan Kitwood/Getty Images
In a budget that was largely devoid of measures that had not been well flagged in advance, the only real surprise was perhaps in some hotly tipped measures that failed to feature at all.
Top of the list, perhaps, was the landmark merging of our PRSI and Universal Social Charge regimes.
While an original plan to abolish USC has been quietly dropped when confronted with the task in finding up to €4 billion in replacement tax revenue, the PRSI/USC merger was a central plank of the leadership campaign on Taoiseach Leo Varadkar.
Minister for Finance Paschal Donohoe went on record to signal his intention to merge the two charges into a single social insurance payment.
While few expected the detail of a new regime to be unveiled in the budget, given the complexity of the job, it was widely predicted that the Minister would at least signal his intention to proceed down the merger path. In the event, there was no mention of the reform plan in the speech.
Silence too on expected relief for landlords as an exodus from the sector feeds into rapidly rising rents in certain urban centres.
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There had been talk of fast-tracking the amount of mortgage interest allowable as an expense against rental income. Property investors also entertained hopes of seeing local property tax (LPT) made an allowable expense.
Neither materialised, nor was there any alternative sop for the sector.
Other areas where change was widely anticipated included inheritance tax thresholds – especially for children inheriting from their parents – and DIRT were also remarkable by their absence.
The Help to Buy scheme had initially been earmarked for abolition, and later modification. By the time the Minister rose to present his budget statement, any reference to the first-time buyer incentive had been excised . The budget papers did, however, include a copy of the Government-commissioned Indecon report on the scheme which warned against its abolition.
Hopes among the environmental lobby for increased carbon taxes will have to wait for another day, as the Minister contented himself with a review by his officials with the promise to return to the topic next year.
Still with the environment, expectation of an increase in excise duty on diesel was fuelled by a report by Department officials for the Tax Strategy Group back in August. With diesel no longer seen as a “green” alternative following Dieselgate and the Government looking at options for raising tax revenues, it had been widely assumed that any relief on electric vehicles would be offset by a diesel excise increase.
But it became clear in the days running up to the budget that no such increase would feature in the Minister’s speech.
The same is true of excise on alcohol. The drinks lobby appears to have succeeded in persuading the Minister that any increase in the drink prices would adversely impact the tourism sector.
The challenge posed to UK visitor numbers from the looming prospect of Brexit and the ongoing weakness of sterling also sufficed to encourage the Minister to announce in his speech that there would be no change in the preferential VAT rate of 9 per cent applying to the tourism and services sectors despite hotel room prices approaching record highs.
Betting tax was another area that came under review in the Tax Strategy Papers, with some support from Independent Alliance members. The prospect of job losses in the sector seems to have persuaded Mr Donohoe to leave well enough alone – at least once he had settle don a substantial revenue raising increase in stamp duty on commercial property transactions.
Of course, the full detail of the budget will only become clear with the publication of the Finance Bill next week. It remains open to the Minister to add some of the missing measures to the legislation that will formally enact his budgetary measures.
http://www.irishtimes.com/business/economy/budget-2018-the-missing-measures-that-never-made-the-speech-1.3251311
Minister gives buyers of residential sites a route of escape from stamp duty rises
about 9 hours ago
Updated: about 5 hours ago
Mark Paul
Minister for Finance Paschal Donohoe announced a tripling of the stamp duty payable by purchasers in commercial property transactions. Photograph: Paul Faith/AFP/Getty Images
Minister for Finance Paschal Donohoe has announced commercial stamp duty refunds to purchasers of residential sites, if they start building homes on the site within 30 months.
Mr Donohoe also announced a tripling of the stamp duty payable by purchasers in commercial property transactions, up from 2 per cent to 6 per cent.
However, he was warned by senior figures in the property and finance industries that the Government will struggle to reach the €376 million it claims the measure will raise.
The lower rate was introduced in 2011 to stimulate a then moribund market, but the Minister said in his speech that “the time is right” for change. The higher rate comes into force on October 11th.
The Government’s estimation that a 4 per cent rise would raise an extra €376 million, implies that the base of taxable transactions is about €9.4 billion.
However, PWC Ireland tax partner Peter Reilly said that the number of commercial property transactions is already slowing and with residential sites stripped out it might only be worth between €2 billion and €2.5 billion in 2017.
“You would struggle to see how a 4 percentage point rise on that could raise €376 million,” he said.
Savills also expressed scepticism over the Government’s figures, which it said were “based on evidence from an atypical period of intense commercial property trading during which distressed assets changed hands prolifically”.
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John McCartney, head of research at Savills, said he believes the State will be “disappointed” by how much cash it is possible to raise from the measure.
“We’re already on a glide path to a more normal level of market transactions after the glut of distressed asset sales of previous years,” he said.
‘Overestimated’
“On this basis we believe the Government has overestimated the potential tax take from today’s commercial stamp duty increase.”
Marian Sheridan, chief economist of Sherry Fitzgerald, said she believes the measure would raise only a “fraction” of the Government’s target.
Meanwhile, as part of a suite of measures targeted at increasing the supply of land for homebuilding, Mr Donohoe also announced in his budget speech changes to the vacant sites levy, which penalises landowners for hoarding sites.
The levy was flagged in previous budgets and was due to come into force anyway this coming January.
However, the Minister announced that the levy, which had been set at three per cent annually, will now rise to seven per cent for the second and subsequent years that a site remains vacant, “if the developer continues to hoard”.
“The message to developers is clear: to have your levy lifted, you need to get on with developing,” said Mr Donohoe.
‘Penalised’
The Construction Industry Federation said the site levy “must be applied fairly and impartially so that genuine landowners/housebuilders experiencing viability issues are not unnecessarily penalised”.
It expressed concern over the commercial property stamp duty changes, which it said could “have a dampening effect on investment”.
Meanwhile, John Heffernan of EY said the rates in the new stamp duty regime are “not out of whack” with other European countries. He also said the rebate scheme for residential sites “needs to be simple” in its application.
Property consultancy CBRE strongly criticised the stamp duty changes, and said the Government is “out of touch with the commercial realities of development and viability” and damaging its reputation with international investors.
“To say that today’s budget is negative for the commercial real estate market is an understatement,” said Marie Hunt, head of research at CBRE.
http://www.irishtimes.com/business/economy/budget-2018-rate-for-commercial-property-sales-rises-to-6-1.3242578
‘This was the last of the recession hangover budgets . . . we are heading firmly in the right direction’
about 8 hours ago
Updated: about 7 hours ago
Fergal O’Brien
Fergal O’Brien, Director of Policy and Public Affairs at IBEC, speaks at the Irish Times PwC Tax Summit. Pictured was Fergal O’Brien, Director of Policy and Public Affairs, IBEC. Photograph: Nick Bradshaw
In direct economic terms, Budget 2018 will have limited short-term impact. The net new spending and tax changes amount to just 0.15 per cent of GDP. However, a number of significant and welcome policy changes will have a very positive impact on economic performance over the coming years.
Given the narrow budgetary constraints accepted by the Government, this was a sensible and well-balanced budget. Most significantly, the new policy measures were largely underpinned by sound economic rationale. As such, they will support job creation and investment decisions by business.
Government has clearly refined its approach to income tax. The increased emphasis on reducing the tax burden on middle income earners is very positive and is something Ibec has long called for.
From a job creation perspective, the increase in the entry point to the top rate of tax is good policy. It addresses where Ireland’s tax on talent is most out of line internationally and, if the approach continues over the coming years, it will ensure average income earners avoid punitive high marginal tax rates. Minister Donohoe’s medium-term plan for personal tax reform has gone down well with both indigenous and multinational employers looking to attract and retain the best talent.
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Ireland’s very low level of infrastructure investment remains one of the biggest challenges facing the country. The significant increase in capital spending outlined for 2018 and subsequent years is a very positive step towards addressing this challenge. Next year’s budget will see significant additional resources becoming available, and much-needed investment can be ramped up further.
The new capital spending commitments, aligned with an ambitious 10-year capital plan and a sensible National Planning Framework, should deliver real improvements in our national infrastructure for both business and citizens.
While there are some useful measures to help support businesses most impacted by Brexit, the scale of resources allocated to Brexit is underwhelming. Budget 2018 has also hit business with a number of labour cost increases, which undermine the commitment that it would be Brexit-proofed. It is essential that the increase in the national training fund levy results in businesses having much more of a say in how the money is spent and ringfences resources for targeted in-work training programmes.
This was the last of the recession hangover budgets. While resources remain limited, we are heading firmly in the right direction. Subsequent budgets will present even greater opportunities.
Fergal O’Brien is director of policy and public affairs at Ibec.
http://www.irishtimes.com/business/economy/budget-2018-charts-ambitious-direction-change-on-key-policies-1.3251080
Budget 2018: The temptation to spend now and worry later nearly always wins
about 7 hours ago
Chris Johns
Fiscal focus: Minister for Finance Pascal Donohoe presents Budget 2018. Photograph: Alan Betson
One way to think about Tuesday’s budget is that we are simply between financial crises: the last one is over, but the next is waiting in the wings. With luck that wait will be a long one, but we just don’t know.
Paschal Donohoe is understandably, and justifiably, optimistic about the future. But the minister for finance during the next crisis will go into that storm with a similar mindset and, as a result, next to no preparation.
One of the more obvious ways in which things could go wrong is with the economic forecast: growth could disappoint. It is in the nature of fiscal policy that every available cent is spent, including the cash promised via our old friend the rosy scenario: buoyant growth expectations.
There are plenty of reasons to be upbeat: European and US growth is picking up. In fact about the only country in the world exhibiting even mildly disappointing economic numbers is the United Kingdom. Everywhere else, including the emerging markets, looks to be experiencing a decent upswing. So economic momentum is with Donohoe.
Obvious concerns
Things can change quickly, however, and there are two obvious concerns. One is that the global upswing will, sooner or later, bring higher interest rates. Additionally, the one economy not benefiting from world economic growth, the UK, remains rather important for the domestic outlook. Although our own recent economic numbers are solid they contain one or two hints that we are not immune to that UK slowdown.
We should not base our spending and taxation plans on economic forecasts. This would have been a good year not to have had a budget: the planned adjustments are so small they don’t really matter. By waiting a year we could have adjusted the fiscal mindset: rather than spending future – forecasted – tax revenue the Minister for Finance could base his plans entirely on outcomes. Wait and see if tax buoyancy comes through. Then spend accordingly (or not).
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Some tax revenue is permanent and can be spent in this way. Other revenue streams are temporary, and should never be spent, let alone promised to be spent forever
Perhaps the main problem we have is with the way we tend to think that all taxes are permanent. If revenue comes in we not only spend it but also commit to spending it each and every year into the future. Some tax revenue is, indeed, permanent and can be spent in this way. Other revenue streams are temporary, and should never be spent, let alone promised to be spent forever.
Two countries, the UK and Norway, both discovered offshore oil about 50 years ago. This provided a tax-revenue bonanza for both nations. One country spent all the oil revenue; the other put it into a sovereign-wealth fund.
No prizes for guessing which country behaved sensibly and which was profligate. The point is that Norway realised the temporary nature of the tax bonanza and figured out how to improve the lot of Norwegian citizens – all of them, including ones not yet born. The UK, of course, did not.
Far from permanent revenue
Many commentators criticise the European Union bailout of Ireland for being too harsh: a banking crisis was inappropriately diagnosed as a fiscal problem and unnecessarily severe fiscal austerity was the result.
Alan Beattie makes exactly this point in the Financial Times when criticising Germany’s outgoing finance minister, Wolfgang Schäuble. Beattie’s criticism misses the fiscal point: the budget at the time of the Celtic Tiger was balanced, so superficially looked restrained, but we spent every cent of boom-time tax revenue, from things like property-related stamp duties and construction workers’ PAYE. That revenue was anything but permanent.
With some revenue streams it is unclear whether they are permanent. A wise finance minister therefore treads with caution. Our booming corporation-tax revenue could well turn out to be the Irish equivalent of striking oil: great while it lasts but with a definite sell-by date. Are we treating this revenue as temporary or permanent?
We seem to be spending every last cent of them – and with a commitment to continue to do so forever, explicitly assuming they will last forever. Could be right, but it’s a risky strategy, particularly for the medium to longer term.
Hard Brexit
Another clear and present danger lies with Brexit – arguably, the next crisis already has a name. We invariably fail to spot where the next financial disaster is coming from, but this time around we have an obvious candidate. It’s called hard Brexit, and the UK now seems odds-on to crash out of the EU in the worst and most chaotic fashion imaginable. I would have called this a budget for Brexit and planned accordingly.
At the very least I would have slashed the economic-growth assumptions. Better to spend a happy surprise than have emergency cuts in the event of disappointment.
“Fiscal” and “policy” are words rarely used in chat-up lines: too difficult, too dull, simply not sexy. But the decisions taken about taxation and government spending affect every citizen of every state in both obvious and invisible ways.
Budgets are now purely political events, albeit ones with economic consequences. Ireland isn’t unique in this regard; neither is it the worse offender. But we need to figure out how to do all of this in a much better way.
http://www.irishtimes.com/business/economy/chris-johns-remember-the-next-economic-crisis-awaits-1.3249923