Budget 2022 – A Look At Whats Ahead
DBASS Blog | October 2021
Feel the difference
The age of Austerity seems to have been long forgotten and indeed it is acknowledged that this prolonged the financial crash which began in 2008.
This time around a global health emergency has sparked a much different response. We have already spent vast sums dealing with the pandemic, committed to ever increasing capital budgets (a major positive) however we also seem to be content to keep running budget deficits for another short while (a less convincing policy).
Ireland has one of the highest rates of government debt in the developed world. Most people don’t see the logic in this and as our clients frequently point out,there will be a price paid for this down the line.
Well what about now?
- Additional funding of €34bn has been provided to date to deal with the pandemic impact. The government has stated that we will run budget deficits right out to 2025 with a deficit of €7.4 billion in that year. At that point total national debt will be €282 billion.
- Tax revenues have held up well despite the pandemic but this has been mainly due to the performance of multinationals that export from Ireland. This shows how reliant we will be on this sector in terms of a robust recovery and the ability to service our debt levels.
- Rising house prices are now 8.6% year on year-Housing is now the key focus as we emerge from the health crisis albeit very carefully. It will be interesting to hear how tax measures fit into the ‘housing for all’ programme.
- Inflation seems to be a real worry as is the significant shortage of labour across all sectors which could slow any long term recovery.
Business and Employment Issues
- Wage subsidy extensions may be announced for some sectors that may need supports into 2022.
- Extension of 9% VAT rate for the hospitality sector is likely into 2022.
- The Government pandemic dividend may also be announced on budget day– flexible working, statutory sick pay, time off, additional pay-in the public sector. What about private sector workers and who foots the bill?
- Minimum wage rises are also expected as the cost of living rises.
- Increased employer PRSI likely (look at the UK example of recent €12bn increase)
- Calls for extensions of CGT relief on sale of businesses – again politically this might be a no go area – we are very much in a cycle of taxing the wealthy and it is hard for ordinary business owners to be heard. The case made is that it makes Ireland less attractive but this isn’t hitting the spot for policy makers.
- Corporation Tax – minimum effective rate of 15% on the cards?
- Our 12.5. % has been a core factor in our economy for 23 years – It supports many jobs that support Income Tax revenues. It remains to be seen if exemptions will apply below certain thresholds or indeed if 15% will be a minimum rate and not go beyond this if Ireland so chooses.
“Small, exporting countries like Ireland are likely to feel the weight of these proposals more acutely than larger economies, or those that are less open to cross-border trade and investment,” the Washington based Tax Foundation said.
With the fact that Digitalising and upskilling Ireland is a national objective it would seem likely that there will be some mention of this in the 2022 Budget, perhaps in the form of additional tax credits and capital allowances for people working remotely and a renewed focus on facilitating digital hubs and shared office spaces.
Our Climate action plan is amongst the most ambitious in the developed world. Tax policy will have to play its part in transforming our energy use and habits which are now unsustainable. Habits will only change if a real incentive or dividend is clear.
This will also be a Carbon Budget, agriculture and particularly land use presents a significant challenge and transport will obviously be high priority with increases in carbon taxes.
Real incentives must be put in place to encourage these changes whilst protecting the most vulnerable in society. Further carbon tax rises are pencilled in although increasing energy prices exacerbate this so it is though fuel allowances will increase to offset the double increases.
It remains to be seen exactly what next Tuesday’s Budget will bring but it is guaranteed to be an interesting read for Irish Businesses.
by Michael Byrne, Partner, DBASS Chartered Accountants.
This article is for discussion purposes only. For further information on any of the topics covered in this article please contact a DBASS adviser on ph. 01 849 88 00.