On the 14th October 2014 Minister for Finance, Michael Noonan TD, and Minister for Public Expenditure and Reform, Brendan Howlin TD, announced the details of the 2015 Budget. For the second year running, the Budget was announced in October reflecting changes agreed at a European level, whereby the 18 Eurozone countries must submit their budgets to the European Commission by 15 October for scrutiny.
This was the 7th Budget, and as with the previous six, all have been designed to redress Irelands’ budgetary position and return the Country to growth. This Budget by way of its features reflects the economic improvements delivered over the past number of years. As a consequence of painful adjustments undertaken and the general improvement in economic conditions the European Commission’s expectation is that Irelands deficit will be under 3% of GDP in 2015.
Budget 2015 had to strike a balance between encouraging a still fragile recovery and continuing to reduce Government borrowing. The Budget set out a roadmap for Ireland’s Tax Competitiveness now and into the future. The package of measures announced were designed to increase the attractiveness of Ireland as a location for inward investment. Such measures included:
- A firm reaffirmation of Ireland’s commitment to the 12.5% rate of corporation tax.
- Elimination of the base year limitation for the Research and Development tax credit.
- A commitment to introduce a best in class “Knowledge Development Box” at a low, competitive and sustainable rate.
- Improvement of the capital allowances regime for intellectual property.
- Improvements to the income tax regime for foreign workers coming to Ireland. This will afford such workers a marginal income tax rate lower than that which applies in the UK.
- Additionally the Minister Noonan announced the elimination of the “double Irish” structure. The “double Irish” tax loophole will be abolished from 1 January 2015 for new companies. All new companies registered in Ireland will also have to be tax resident. For existing companies there will be a transition period until end of 2020.It is expected that the Irish operations of such Companies will remain very competitive.
Other positive measures include:
- The lowering of the income tax burden on low and middle earners.
- The abolition of the 0.6% pension levy.
- The abolition of the 80% rate of capital gains tax on rezoned land.
- The retention of the 9% tourism VAT rate.
- Improvements to the EIIS scheme (income tax relief for investment in certain trades).
On a less positive note the failure to reduce the top combined rates of income tax, USC and PRSI (52% for employed, 55% for self-employed) and the indication that policy is to keep these rates high is disappointing. These rates are very high by international standards, reflected by the fact that the top 1% of earners in Ireland pay more tax than the bottom 76%.
However, it must be said that Ireland has emerged from the worst financial crisis in living memory with a Pro Business Tax regime intact is a very meritable achievement. It demonstrates that Ireland’s commitment to a competitive taxation offering for business, which has now endured for 60 years, remains extraordinarily strong.
Budget effects on:
- The top rate of income tax has been cut from 41% to 40%.
- The point at which a single individual will begin to pay the higher rate of income tax has been raised by €1,000, from €32,800 to €33,800. The tax band for married one-earner couples has been increased from €41,800 to €42,800 and for married two-income couples from €65,600 to €67,600.
Universal Social Charge (USC)
- The first rate of USC was reduced from 2% to 1.5%.
- The second rate of USC was reduced from 4% to 3.5%.
- A new additional USC rate of 8% applies on PAYE income in excess of €70,044.
- A new additional USC rate of 8% applies on self-assessed income between €70,044 and €100,000.
- An increase from 10% to 11% in the rate of USC to apply on self-assessed income in excess of €100,000 will be introduced.
Value Added Tax (VAT)
- The reduced rate of 9% VAT for the tourism sector is to be retained.
- All other VAT rates are to remain untouched.
- Income tax relief on water charges at standard rate up to a maximum of €500 per household per year. The water charges relief will be worth up to €100 per household per year when claimed the following year.
- The pension levy of 0.6% will be abolished on 31 December 2014.
- A pension levy of 0.15% will be introduced until 31 December 2015.
- Speaking in the Dáil , Minister Noonan said that “the 12.5% tax rate never has been and never will be up for discussion. The 12.5% tax rate is settled policy. It will not change.”
- The three-year corporation tax relief for start-up companies is to be extended.
- The accelerated capital allowances scheme for energy efficient equipment to be extended for a further three years.
- The “double Irish” tax loophole will be abolished from 1 January 2015 for new companies. All new companies registered in Ireland will also have to be tax resident. For existing companies there will be a transition period until end of 2020.
- There will be no increase in excise duty on petrol or diesel.
- There will be no increase in motor tax.
- There will be no milk quotas from 2015.
- The Government will provide an additional €6 million a year for three years to the fund for horse and greyhound racing.
- Farmers’ flat rate of VAT will be increased to 5.2% with effect from 1 January 2015.
- The ‘Start Your Own Business’ Scheme will see those who are unemployed and starting their own new business exempt from income tax for two years.
- Research and development tax credit relief will be improved with the phasing out of the base year from 1 January 2015.
- A new strategy for International Financial Services in Ireland is to be launched next year.
- The amount of finance that can be raised by a company under the Employment and Investment Incentive is to be increased to €5 million a year up to a lifetime maximum of €15 million. Nursing homes, medium-sized enterprises in non-assisted areas and internationally traded financial services certified by Enterprise Ireland will now qualify.
- The required holding period for shares is to be increased from three to four years.
- The list of countries eligible for foreign earnings deduction is to be extended and the number of days employees must be abroad is to be reduced to 40.
- There will be no cuts to social welfare schemes for the first year since 2009.
- There will be a €5 increase to monthly child benefit. The Government has also pledged to increase the sum by an additional €5 per month per child next year.
- There will be an increase in the rate of the Living Alone Allowance to €9 per week.
- A 25% bonus will be provided to social welfare recipients this Christmas.
- There will be a doubling of the number of positions for the long-term unemployed on the Government’s wage subsidy scheme JobsPlus, up to 6,000.
- An investment of €2.2 billion will be allocated to the justice sector to allow for the future recruitment of 200 additional Gardaí.
- In education, more than 1,700 additional new full-time posts will be introduced next year: 920 mainstream teachers, 480 resource teachers and 365 special needs assistants (SNAs). There will be no increase in class sizes.
- The Home Renovation Incentive (HRI) Scheme is to be calculated at 13.5% on works worth over €5,000 and under €30,000 on a family’s primary residence in 2014 and 2015.
- The HRI Scheme will be extended to private landlords to incentivise standards in the private rental sector.
- Capital Gains Tax relief will be removed from January 2015 and first-time buyers will be in line for a refund on Deposit Interest Retention Tax (DIRT).
- Minister Howlin announced a €2.2 billion three-year plan for social housing. This investment is set to deliver 2,500 new homes next year and more than 6,700 by 2017.
- An additional €10 million will be provided for accommodation and related services for homeless persons.
- Gross current expenditure for 2015 will be just over €50 billion, up €429 million on 2014.
- There will be a €210 million increase in capital spending for 2015 to over €3.5 billion.
- €1.6 billion will be made available to provide approximately 300,000 work and training places.
- The health budget will hit €13.1 billion in 2015, including €25 million for delayed hospital discharges.
- The Department of Children and Youth Affairs will be allocated €975 million.
- Ireland has secured €1.2 billion in EU Structural Funds for the period 2014-2020.
- Next year the Government will provide €476 million for international aid.
- €212 million will be allocated to the Department of Arts, Heritage and the Gaeltacht in 2015.
- The Department of Defence budget is set at €885 million.