Minister for Finance Michael Noonan introduced the 2017 Budget on 11th October 2016, in which a €1.3 billion package of tax cuts and public spending were announced. Further detailed measures will be included in the Finance Bill due to be published on 20 October 2016. This Budget is the second budget in a row where the Government’s choices have been about how to distribute benefits rather than how to distribute austerity and return the Country to sustainable growth.
In contrast to last year, there was not “something for (nearly) everyone” in this Budget. Rather, with limited room for fiscal maneuvering, pressing social needs, particularly in relation to housing, and a minority Governments political arrangement to contend with, Budget 2017 was more focused on a few priorities.
Whilst a definite air of post-Brexit budgetary caution is evident, there are also a few areas that will be of concern to the business community, including the fact that while there were improvements for the CGT regime, comparatively it is not really going to drive dramatically entrepreneurship.
Importantly, the Government has grasped the nettle by signaling a review of the corporate tax system and its impact on investment. In addition, we would like to see greater personal tax relief and whilst some comfort was contained within this Budget, we would like to see personal tax burden on work/earned income continuing to be a priority, going forward. OECD research shows that, after corporation tax, personal taxes have the greatest impact on a country’s competitiveness. The importance of personal taxes will grow in the future due to the impact of changes in international taxation law.
Key measures announced were:
- A 0.5% cut in the rate of USC for low to middle incomes
- A reduction in the rate of capital gains tax from 20% to 10% on up to €1 million of gains earned by entrepreneurs
- Introduction of a first time house buyer’s tax credit with a value of up to €20,000
- An increase in the main exempt CAT threshold from €280K to €310K with proportionate increases in the other thresholds
- A further closing of the gap between the tax credit available to the employed and the self-employed
- A phased reduction of the rate of DIRT by 8% over four years.
- A phased restoration of full interest relief for landlords over a five year period
- A commitment to introduce a share incentive scheme for SMEs by 2018
- A €2,000 increase in the “rent a room” relief
Comment - Deposit Interest Retention Tax (DIRT)
The rate of deposit interest retention tax (DIRT) will be reduced by 2% each year for the next four years from a current rate of 41% to 33% in 2020. Historically, the rate of DIRT has moved in lockstep with the exit tax applicable to life assurance policies and investments in fund vehicles. However, the reduction in rate announced by the minister will only apply to DIRT (unless this understanding is addressed in the Finance Bill). Payments from life assurance policies and investment funds will remain taxed at the 41% rate. Should this rate differential remain this would create an unfair investment environment. Already, Investors in direct Equities and Property have a Taxation advantage with Capital gains tax at 33% applicable. We believe such differentiation could create an environment where the Tax advantages of a particular Investment option as opposed to the quality of the underlying asset, could misdirect Capital.