Positive budget, but there’s a lot more to do

Two days have passed since the budget for 2015 was delivered by the tag team of Finance Minister Michael Noonan and Public Expenditure Minister Brendan Howlin.

It’s one of those budgets that appears to tick a lot of boxes, yet will not make a huge or even a real difference to most people.

As they say, it’s another case of “a little done, a lot more to do”.

However, it is reasonable to suggest that the marginal changes to that most unfair tax of all, the Universal Social Charge, are to be welcomed. We must see greater reductions in 2016 and thereafter.

Government’s intention to drop the pension levy — AKA: Theft 0.6% rate — this year and the remaining 0.15% by the end of 2015 is to be welcomed. Still, Mr Noonan resisted the temptation to be a man of his word and get rid of the levy within three years as he promised in 2011.

It was interesting to note that the early response to the proposed changes to corporation tax was, in general, positive. Earlier, industry comments suggested that there would be resistance. The particular aspect of Irish tax policy, that of the “double Irish”, which allows companies to almost eliminate corporation tax completely, has been incensing several countries, particularly the US, but also Britain, France, and Germany, which have lost investment to Ireland.

Let’s hope the proposed changes, which included some new goodies such as a knowledge development tax box, work not only for us but for those whom we are trying to attract. The new policy will eliminate the double Irish for all new entrants from January 2015. However, existing companies will have until 2020 to get in line. It will give greater certainty to those companies looking to invest here. Competition for highly mobile foreign direct investment has grown considerably and uncertainty, in terms of our tax policies, would damage our attractiveness at a time when we need every bit of value-adding job creating investment we can get.

More importantly, the Government has stated that the 12.5% tax rate never has been, and never will be up for discussion and is part of settled policy.

Hopefully, Mr Noonan has not made himself a hostage to fortune by marking another red line in the sand that will not be crossed. In the past, lines in the sand were crossed at will. Corporation tax is such an important part of our ability to attract high value-added projects, which support tens of thousands of our well educated graduates, and is a vital segment of maintaining our exports, our balance of payments and a major contributor to our GDP.

Just because Mr Noonan insists on this at this time does not mean countries competing for the same foreign direct investment will allow us to have it without a fight.

Only last week, Steffen Kampeter, the German deputy finance minister, said solidarity is not a one-way street, when agreeing that Ireland be allowed to restructure its debt and save an estimated €400m per annum as a result. Changing the double Irish regime goes partly towards placating that demand, as such tax loopholes are high on the German agenda. He said Germany should continue to campaign to reduce legal tax avoidance in Ireland.

What’s to say that the 12.5%, which was an issue before, will not once again become an issue if we continue, which hopefully we will, to attract the types of companies we need? Those companies are those that will give our young people the types of jobs they need.

Solidarity means different things to different people and may not always be to our advantage. For instance, what will solidarity with the hard-pressed private sector mean when the public sector folk start ramping up their demands for more money?