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Budget Report 2016 - Mazars
By The Mazars Tax Team
Oct 14, 2015

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Budget 2016 is the first Budget in recent years where the focus is on supporting the economic recovery through some changes in USC for employees in the lower and middle income categories and increased Government spending across a number of areas.

Government Revenues are expected to come in at €48bn in 2015 and €50bn in 2016, with current budget deficits of €1.1bn and €0.5bn respectively for those years. GDP growth is estimated at 6.2% for 2015 and 4.3% in 2016. The debt to GDP ratio is projected to be 93% in 2016 which will be a significant reduction from a high of 120% in 2012. If the strong economic growth continues over the next number of years there will be additional flexibilities on positive tax changes and expenditure on services and social needs.

The Minister, in his paper on Ireland’s International tax strategy, highlighted some key points to maintain our status of most preferred destination for foreign direct investment:
  1. Maintain 12.5% Corporation Tax Rate
  2. Introduce new Knowledge Development Box Scheme (KDB)
  3. Commitment to open and transparent tax regime
  4. Introduction of country by country reporting for MNC’s with effect from 1 January 2016
The main change on the Income Tax side is the reduction in the USC charge for lower and middle income earners, with the changes amounting to approx. 1 week’s wages per year. In general those on incomes below €70,000 per annum should have a marginal tax rate of no higher than 49.5% between income tax, USC and employee PRSI. The Government has delivered on its commitment to end the unfair treatment for self-employed individuals with the introduction of an Earned Income Tax credit of €550.

In relation to CGT there is a proposed rate of 20% for entrepreneurs on gains up to €1m. The CAT threshold for gifts/inheritances from parents is being increased from €225,000 to €280,000 with respect to benefits received on or after 14 October 2015.

In the construction sector there is some good news with the commitment to NAMA building 20,000 new residential homes over the next 5 years. In addition the Home Renovation Incentive Scheme (HRI), which provides 13.5% tax relief on certain residential housing works, is being extended to 31 December 2016. These provisions together with the direct spend on social housing should improve matters but more could have been done to alleviate the pressure on the housing market in particular for student accommodation and first time buyers.

On the expenditure front there is welcome news in relation to the recruitment of 2,260 additional teachers and 600 extra Gardaí. The funding for Health has now returned to the pre-crisis level and Social Protection spending is also increasing with an increase in pension payments by €3 per week and the restoration of the respite grant of €1,700. Childcare has been identified as a key priority for the Government and additional spend is proposed on a range of areas. With the centenary of the Easter rising in 2016, an amount of €50m has been provided for special events around the country. €25m is being provided for accommodation and staffing in support of the refugee crisis on Europe’s borders.

Overall the 2016 Budget should provide further growth opportunities in the Irish economy and with a projected increase in employment numbers by 48,000 in 2016 this will bring the unemployment rate to approximately 8% and result in increased tax receipts and lower social protection payments.

The Government needs to ensure that this job growth continues into the future in order to reduce further both the high tax burdens and the overall debt burden. While there was great hope that Entrepreneurs would be supported through changes to the EIIS and CGT regimes very little was done under this heading, with the CGT rate generally still at 33% and an EIIS scheme which is not generous enough to encourage real investment. A little done and a lot more to do.

The Finance Bill for 2016 should be issued over the next 2/3 weeks and this will expand in greater detail on the summary items in the Budget.

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