Budget 2022 will be an unusual one.
In what will be seen as a post-pandemic budget, it will have to juggle the continued reopening of the economy, with providing support to business and commencing the process of broadening the tax base to pay for all the supports provided over the last 18 months.
The commitments to increases in various welfare benefits and potential Covid bonuses also need to be baked into the final numbers, all the while with one eye on debt levels per capita.
As if this wasn’t enough, the sacrosanct 12.5% corporate tax rate is under significant external pressure to change and to increase to 15%.
While there will be a €4.7bn budgetary package, room for manoeuvre will be limited due to significant pre-existing commitments.
There is likely to be only €1bn available for new spending measures not already committed to and an additional €500m for new tax measures.
Of the €1bn, half would appear to be committed to welfare increases, with the remainder likely earmarked for health care and housing.
While this is positive news, it is unlikely to result in significantly higher levels of disposable income; the changes are expected to be marginal and primarily being driven to offset inflation.
Budget 2019 was the last time the bands were increased. For a single taxpayer, there was a €750 increase in the lower band in 2019, translating into €150 less tax a year.
This change cost €161m. The broadening of the band is intended to ensure that taxpayers retain purchasing power parity.
Assuming that the increase will be in line with Budget 2019, it is questionable if this parity will even be achieved given the €200 increases announced by utility providers.
If personal tax bands are to be increased, so too will USC bands.
Hints have been dropped in the media over recent weeks that the minimum wage rate is likely to increase. In the absence of changing bands, low paid workers would be brought within the scope of USC.
We are likely to see an increase in the two lower USC bands, but the rates are likely to remain unchanged. Similar changes were made in Budget 2019 at a cost of €123m.
Soaring global crude oil prices are already translating into increased prices at the pump. A budget night change will continue to increase that upward trajectory.
The Department of Finance’s Tax Strategy Group recommended increase would equate to €1.28 / €1.50 in the price for a full tank of petrol and diesel respectively. With such an increase, we are likely to see our own queues forming at the pumps.
Revenue raising measures will be keenly in focus and all up for grabs.
Receipts from motor vehicle taxation have been steadily decreasing year on year. This is due to the natural replacement of vehicles with more environmentally friendly stock.
It is possible that the motor tax rates for vehicles could be increased.
Potential changes recommended by the Department of Finance’s Tax Strategy Group centre around mileage claim rates and benefit in kind (BIK) taxation of passenger and commercial vehicles.
Changes to the BIK regime would effectively mean a higher taxable benefit being received by the employee, which would translate into higher PAYE / USC / PRSI being payable.
The Tánaiste and Minister for Enterprise, Trade and Employment Leo Varadkar, announced in recent days that the budget will be used to promote remote working.
Support is to come in the form of updating the scheme that sees workers supported for utility costs.
The current scheme provides 10% relief for heating and electricity costs, and 30% relief for broadband. It is speculated that the 10% relief could increase to 30%.
While appearing modest, in the context of a €500m package, such an increase could cost €8.6m annually.
Covid supports have been an invaluable lifeline to many employers. While the employment wage subsidy scheme (EWSS) is to operate for the remainder of 2021, it is unclear what the subsidy rates will be for November and December.
The government promised businesses that Covid supports would not be withdrawn suddenly, in a cliff edge manner. If this promise is to be honoured, it is anticipated that subsidy rates would remain unchanged for the remainder of 2021.
For 2022, we would expect to see the scheme continue in operation for the early part of the year, but with graduated reduction in rates. This would be similar to how the unwinding of the Pandemic Unemployment Payment (PUP) was managed.
With bars and restaurants still suffering the impact of lockdowns, the sentiment appears to be that an increase in price would only shoulder a further challenge on the hospitality sector as they grapple with reopening.
A final aspect of the upcoming budget worth noting for the business and FDI sector relates to digital gaming.
Minister for Finance Pascal Donohoe announced last year in his Budget 2021 speech that a new tax regime would be introduced for the digital gaming sector.
Being one of the fastest-growing sectors internationally, an enhanced tax regime that would attract high skilled and high paid employment to Ireland, would be a positive development.
Hopefully, there will be further detail announced in the upcoming Budget 2022 speech.
If there is only €500m of headroom for new tax measures, any such announcements need to be targeted and effective.
The impact of any change to the 12.5% corporate rate needs to be clear in terms of whether it applies to all companies or if we will have a two-tier rate system.
While there are already many known elements of the upcoming budget, there will undoubtedly be one or two surprises on the day.
Cormac Kelleher is international tax partner at Mazars in Ireland