Finance and the economy
What has changed?
- The dual finance ministries of the Department of Finance (DOF) and the Department of Public Expenditure and Reform (DPER) remain in place.
- DOF retains Michael Noonan as Minister while Paschal Donohue is the new Minister in DPER.
- The budgetary process is likely to see significant changes under the new Government.
- Central to this will be a new Budget Office and a year round budgetary process which will be significantly more consultative with far more opportunities for input by the Oireachtas.
Positives for business
- A clear commitment to fiscal stability is more than welcome although it is apparent that room for sensible long term investment is limited by the fiscal rules. The Government should seek more flexibility in the EU fiscal rules to allow ambitious investment in productive infrastructure.
- The commitments to maintain the 12.5% corporation tax rate and to engage with Base Erosion Profit Shifting are positive steps.
- Ibec welcomes the changes to entrepreneurs tax such as the EITC for self-employed and a commitment to examine a share options scheme.
- Non-indexation of tax credits at the entry point to the tax system is sensible in broadening the income tax base.
- A new Public Procurement SME advisory group with a commitment to continue to develop more measures to assist SME's access to public contracts.
Outstanding issues and missed opportunities
- Reductions in personal tax rates such as the continued phasing out of the USC for low and middle income earners may be welcome for workers. However, abolishing the USC would be a step in the wrong direction. Its abolition would narrow the tax base and put more pressure on a smaller numbers of tax payers.
- Rather than abolition, part of the USC should be converted to a contribution for workers to a defined contribution pension scheme. Reform should see the marginal income tax rate down to 45%, moving it in line with competitor economies.
- As things stand, workers enter the top tax rate at too early a stage. Half of workers already pay tax at the 49.5% marginal rate or above. In this context non-indexation of the top rate entry point will cause serious employment issues. The entry point to the top marginal rates should be linked to above the average wage.
- Removal of the tax credits for higher earners is an unwelcome development. Ibec recommends that tax reform should be targeted at areas where we are out of line with international competitors. While Ireland is a high tax country for high skilled employees, too many are paying little or nothing at all. Removing tax credits will only exacerbate this differential and damage our attractiveness for high skilled workers.
- The additional €4 billion in capital spending is welcome but this level of investment will fall well short of what is needed in the coming years. Ibec advocates 4% GDP per annum.
Contact Gerard Brady, Economics and Taxation policy at firstname.lastname@example.org