Pre-budget White Paper sets out Government’s tax and spending projections
Sat, Oct 7, 2017, 09:34
Updated: Sat, Oct 7, 2017, 09:35
Minister for Finance Paschal Donohoe has secured an additional €300 million from Government coffers to pay for the upcoming Christmas bonus to welfare recipients and the water refund payments.
The extra money, contained in the Department of Finance’s pre-budget White Paper, was generated from existing resources, the department said.
It brings the Government’s spending estimate for 2017 to €51.2 billion, which is higher than previously signalled in its Summer Economic Statement.
The new estimate won’t impact the measures to be announced in Tuesday’s budget or the fiscal space for next year.
The White Paper on Estimates of Receipts and Expenditure, published late on Friday night, contains the department’s projections for tax and spending this year and next. It effectively lays out the Government’s pre-budget starting position.
The paper suggests the department is now expecting to run a budget deficit of 0.3 per cent of gross domestic product (GDP) this year instead of the 0.4 per cent previously forecast, ahead of achieving a balanced budget next year. Based on September’s exchequer data, the department expects tax revenue for the year to be €50.6 billion, unchanged from the Budget 2017 forecast.
The latest exchequer returns, published on Tuesday, show the Government has so far collected just over €35 billion in taxes, some €212 million less than expected.
However, Department of Finance officials are confident this gap will unwind by the end of the year on foot of more buoyant income tax receipts from the self-employed in November.The pre-budget White Paper also expects capital spending for 2017 to be €5.3 billion. This raises the base for next year, with net capital spending of €5.9 billion now expected.
The Department also projects an increased contribution to the EU budget, up to €2.6 billion next year, from €2.3 billion this year, based in large part on our revised national income figures. The Department’s forecasts are based on GDP growth projections of 4.3 per cent this year, falling to 3.5 per cent next year.
Move on multinational tax arrangements expected to be announced in the Budget
Sat, Oct 7, 2017, 08:30
Contacts are believed to have been made with the major companies over the change to the regime. Photograph: iStock
An important change to multinational tax arrangements is expected to be announced in Budget 2018, limiting the tax write-offs big companies can take up front on movements of valuable intellectual property to Ireland. The move could provide a significant boost to the exchequer finances over the next few years, although estimating the likely yield is difficult.
In January 2015 the Government changed the rules in relation to how companies claim capital allowances on investment in intellectual property – the copyright, trademarks and patents relating to the design, development and marketing of products. Before 2015 companies could write off the allowances against a maximum of 80 per cent of the profits related to intellectual property in any one year. However, in 2015 the 80 per cent rule was removed, at the same time as the Government closed off the use of the controversial double Irish tax allowance to new arrivals.
The recent report on corporate tax by economist Séamus Coffey, commissioned by the Department of Finance, recommended that the rules should be changed back to the pre-2015 position. It said this would help to smooth out corporate tax re venues from year to year.
Under the proposed change, companies would still be able to claim the full cost of the investment in intangible assets, but restricting the amount of profits they can shelter each year means they would do so over a longer period. In turn this would boost tax revenues over the next few years, though by how much will depend on how the new rules are framed and on the amount of intellectual property investment undertaken.
In particular, it is not clear whether the change will apply only to new intellectual property in which firms invest after budget day, or whether the restriction could also apply to assets brought in over recent years.
A number of major multinationals have moved their intellectual property assets to Irish subsidiaries over the past few years, driven by emerging international tax changes that discourage companies from holding these assets in offshore tax havens. The Coffey report pointed out that this so-called “ onshoring” accounted for a massive €250 billion rise in intangible assets in Ireland 2015. The resulting profits distorted Ireland’s GDP figures, which showed a massive 26 per cent rise in that year.
Contacts are believed to have been made with the major companies over the change to the regime. Most are not thought to have objected, although the issue is sensitive given the scale of assets involved and the move towards country-by-country reporting of multinational accounts.
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Hurricanes Harvey and Irma caused temporary unemployment and delayed hiring
about 10 hours ago
People walk the streets as they evacuate their homes in Houston, Texas, after the area was flooded by Hurricane Harvey
US employment fell in September for the first time in seven years as Hurricanes Harvey and Irma left displaced workers temporarily unemployed and delayed hiring, the latest indication that the storms undercut economic activity in the third quarter.
The Labour Department said on Friday non-farm payrolls decreased by 33,000 jobs last month amid a record drop in employment in the leisure and hospitality sector.
The drop in payrolls was the first since September 2010. The Department said Harvey and Irma, which wreaked havoc in Texas and Florida in late August and early September, had reduced “the estimate of total non-farm payroll employment for September.”
Economists polled by Reuters had forecast payrolls increasing by 90,000 jobs last month. The government revised data for August to show 169,000 jobs created that month instead of the previously reported 156,000.
Payrolls are calculated from a survey of employers, which treats any worker who was not paid for any part of the pay period that includes the 12th of the month as unemployed.
Many of the displaced people will probably return to work. That, together with rebuilding and clean-up is expected to boost job growth in the coming months.
Leisure and hospitality payrolls dived 111,000, the most since records started in 1939, after being unchanged in August. There were also declines in retail and manufacturing employment last month.
Harvey and Irma did not have an impact on the unemployment rate, which fell two-tenths of a percentage point to 4.2 per cent, the lowest since February 2001.
The smaller survey of households from which the jobless rate is derived treats a person as employed regardless of whether they missed work during the reference week and were unpaid as result.
It showed 1.5 million people stayed at home in September because of the bad weather, the most since January 1996. About 2.9 million people worked part-time as a result of the bad weather.
The length of the average workweek was unchanged at 34.4 hours. With the hurricane-driven temporary unemployment concentrated in low-paying industries like retail and leisure and hospitality, average hourly earnings increased 12 cents or 0.5 per cent in September after rising 0.2 per cent in August.
That pushed the annual increase in wages to 2.9 per cent, the largest gain since December 2016, from 2.7 per cent in August. Annual wage growth of at least 3 per cent is need to raise inflation to the Fed’s 2 per cent target, analysts say.
The mixed employment report should not change views that the Federal Reserve will raise interest rates in December.
Fed chair Janet Yellen cautioned last month that the hurricanes could “substantially” weigh on September job growth, but expected the effects would “unwind relatively quickly”.
The US central bank said last month it expected “labour market conditions will strengthen somewhat further”. The Fed left interest rates unchanged in September, but signalled it expected one more hike by the end of the year. It has increased borrowing costs twice this year.
The employment report added to August consumer spending, industrial production, homebuilding and home sales data in suggesting that the hurricanes will dent economic growth in the third quarter.
Economists estimate that the back-to-back storms, including Hurricane Maria which destroyed infrastructure in Puerto Rico last month, could shave at least six-tenths of a percentage point from third-quarter gross domestic product.
Growth estimates for the July-September period are as low as a 1.8 per cent annualised rate. The economy grew at a 3.1 per cent rate in the second quarter.
Construction payrolls rose 8,000 in September. Manufacturing employment slipped by 1,000 jobs. Retail employment declined by 2,900 jobs.