Irish Budget 2020 - A Cicero Group overview October 2019
Budget 2020 was presented in the context of a no-deal Brexit as per the Irish government’s assumption. This would mean a slower pace of economic growth in Ireland going forward.
Brexit Paschal Donohoe’s ‘Brexit Budget’ was never going to be ‘a something for everyone in the audience’ budget. That much had been clear for weeks as he and other government figures repeatedly dampened expectations, warning of the need for fiscal caution as we brace for a potential Hard Brexit. The headline figures confirmed this, with no increase in pensions or changes in PAYE brackets, among other gaping absences which would normally be uncharacteristic from an Irish government in fiscal surplus. Nonetheless, these measures will not be enough to keep the state out of the red if Boris Johnson does find a way around the Benn Act, with a 0.6% deficit predicted for 2020 if this does occur. Donohoe’s repeated use of the term ‘targeted’ gives some indication of the thought process that inspired today’s budget, with the overwhelming concern being towards ensuring that those specific areas of the economy most at risk from No Deal are not totally wiped out. The sentiment of the day has been a concern for businesses (especially Irish SMEs) that are ‘vulnerable but viable’, and which will require huge state support if they are to weather a no deal storm. The government’s €1.2 billion package (excluding any EU funding) includes €650 million to be ring fenced for the most vulnerable sectors – agribusiness, tourism etc – and will also see significant increases in funding for the Department of Business, Enterprise, and Innovation, as well as the economic agencies Enterprise Ireland and IDA Ireland.
Business Whilst the headline tax rates most relevant to business (e.g. corporation tax, PRSI) have remained largely unchanged, a number of schemes designed to incentivise the growth of the indigenous SME sector have received some alteration. The Employment Investment Incentive Scheme (EII) will now allow for tax incentives to be claimed in the first year,
Irish Budget 2020 - A Cicero Group overview whilst previously they were shared between the 1st and 4th year. The annual investment limit has likewise been increased from €150k to €250k per year (or €500k for those who are prepared to invest for 10 years or more). Similarly, the KEEP scheme (Key Employee Engagement Programme) introduced in 2017, which aims to facilitate share-based remuneration by unquoted SME companies to attract key employees, has been expanded in today’s budget, with companies operating through a group structure now qualifying for the scheme. The legislation will now allow for part-time/flexible employees to participate, as well as allowing greater employee movement within group structures. The scheme is to be applied retroactively, allowing existing shares to qualify for KEEP. However, the Capital Gains tax requirement is still to be charged when shares are sold. While our protected corporation tax remained tax unchanged, the Minister did commit to undertake a review of our tax policy and look to align with international standards. Critics may say that was him kicking to touch until after the 2020 general election.
Climate Unsurprisingly the climate did feature heavily in today’s budget with a number of taxes and incentives introduces in a bid to alleviate some of the pressure on our environment. Carbon tax is set to increase by €6 per tonne as a first step towards the target of raising it to €80 a tonne by 2030. This increase will apply to auto fuels from midnight, but other fuels will be delayed until May 2020. The revenue collected will be ring-fenced to fund new climate action measures to protect the vulnerable in society, with a particular references to the midland communities of Ireland and those in a receipt of the social welfare Christmas bonus. Electric vehicles, Hybrids and companies that specialise in retrofitting homes and business were the big winners from this budget with new funding allocated and extension on existing incentives announced. You will find a breakdown of other measures adopted under Budget 2020 today below;
Economic stats: • • • • • •
GDP growth has been 5.5% for 2019 according to the Irish Fiscal Advisory Council. Deficit of 0.6% predicted in the event of a no-deal Brexit. In the unlikely event of a Brexit deal, a surplus is expected to run at 0.2% in 2020. Tax revenues are at €40.7 billion since the end of September Employment stats: record 2.3 million people at work, unemployment rate is at 5.3% and falling. 20,000 homes built in past year. House prices are levelling off, especially in Dublin. 19,000 jobs still predicted in event of no deal Brexit, and continued growth in revenue.
Brexit Budget • •
Deal or No Deal, €200 million will be available next year for staffing and infrastructure needs In the event of a No Deal, €650 million in contingency funding will be made available to support affected sectors. €220 million will be released immediately
Irish Budget 2020 - A Cicero Group overview Tax • • • • • • • • •
Inheritance tax threshold is to increase from €320,000 to €335,000. No changes to income tax thresholds. Extension of reduced rate of USC for medical card holders to the end of 2020. No change to capital gains tax (CGT) entrepreneurial relief. 0.1% increase in the National Training Levy. No change to corporation tax rate - Minister Donohoe is publishing the Fiscal Vulnerabilities Scoping Paper which examines corporation tax over-performance and policy options aimed at ensuring the sustainability of the public finances. Special Assignee Relief Programme and Foreign Earnings Deductions are to be extended to end of 2022, following a review. Bank Levy increase: 59% up to 170% 2% reduction in DIRT, from 35% to 33%.
Business • • • • • • •
Government to introduce supports for vulnerable but viable businesses post-Brexit. A ‘transition fund’ will include funding for targeted new interventions to help firms of all sizes and in all levels of difficulty. These supports will come in the form of grants, loans, and equity. Stamp duty at a rate of 1% will be applicable where a scheme of arrangement involving a so-called ‘cancellation scheme’, in accordance with part 9 of the Companies Act 2014, is used for the sale of a company - from midnight tonight. Introduction of a relief from betting duty and betting intermediary duty up to a limit of €50,000 per year in recognition of the difficulties experienced by small independent bookmakers. R&D tax credit to increase from 25% to 30% for micro and small companies alongside an improved method of calculating credit. New provisions will be introduced for those claiming credit on qualifying R&D expenditure before they commence trade. €45m will be made available to assist those who have lost jobs transition to new work. No changes to entrepreneurial relief. However, the government will be considering changes to better support entrepreneurial activity. Extension of tax exemption production threshold for micro-breweries from 40- hectolitres to 50- hectolitres.
Employment Share & Investment Schemes: • • • • •
The KEEP scheme (Key Employee Engagement Programme) introduced in 2017, which aims to facilitate sharebased remuneration by unquoted SME companies to attract key employees, has been expanded in today’s budget, with companies operating through a group structure now qualifying for the scheme. The legislation will now allow for part-time/flexible employees to participate, as well as allowing greater employee movement within group structures. The scheme is to be applied retroactively, allowing existing shares to qualify for KEEP. Capital gains tax will still be charged when the shares are sold. Employment and Investment Incentive: Government allowing for full income tax relief to be provided in the year of investment rather than splitting it over years one and four as has been the case up to now. Intentions to increase the annual investment limit for the incentive to €250,000 and provide for a new €500,000 annual investment limit being introduced for those investors who are prepared to invest in EII for ten years or more.
Irish Budget 2020 - A Cicero Group overview
Construction • • • • • •
Help to Buy scheme is being extended for a further 2 years in its current form to 2021. Stamp duty on commercial property is to rise 1.5% from midnight (from 6% to 7.5%). €2.5bn will be allocated to the Housing Programme in 2020. Investment of €1.1bn for social housing. €80m into the Housing Assistance Payments scheme to support existing tenancies plus an additional 15,750 tenancies. A further €20m will go to homeless services.
Climate Action and the Environment: • • •
• • • • •
The Climate Action Plan will be supported by the National Development Plan €8.1bn investment and a further €13.7bn by state companies. Carbon tax is to increase by €6 per tonne as a first step towards the target of raising it to €80 a tonne target by 2030. Carbon tax increase will apply to auto fuels from midnight, but other fuels will be delayed until May 2020. Revenues will be ring-fenced to fund new climate action measures to protect the vulnerable in society, including changing how we travel, the introduction of new environmental schemes, supporting midlands communities and those enduring job losses as a result of power station closures. €20m of these funds will be used for the creation of a new home energy efficiency scheme and aims to create new sustainable employment in the region of 400 jobs. €5m towards peatland rehabilitation, supporting reductions in greenhouse emissions. €3m is being allocated for electric vehicle infrastructure. €6m to help communities determine the most pressing priorities, with the appointment of a ‘just transition commissioner’ who will engage with the midlands, unions, local taskforces and those recently unemployed. New tax based on nitrogen oxide emissions to replace existing 1% emissions tax .
Health • • • •
Health is to get the biggest budget increase of any department, meaning health spending will hit a new record next year, €17.4bn, an increase of 6.3%. Free GP care for under-eights and free dental treatment for under-sixes from September 2020. Maximum a family pays for medicine in a single month will be capped at €114 next year, meaning a reduction of €10. 56,000 additional medical cards, costing €30m.
Get in touch Aideen Ginnell Ireland Director aideen.ginnell@cicero-group.com +353 1 961 9261
Aisling Cusack Account Executive aisling.cusack@cicero-group.com +353 1 653 2142