A budget ahead of a General Election usually has the feel of Christmas about it. Budget 2016, coming at a time of economic recovery, was no exception.
For the experts in the legal and accounting world, however, the real meat is usually contained in the Finance Bill, publication of which normally takes place a fortnight or so after Budget Day.
This is where department officials get down and dirty and come up with new measures aimed at combating tax avoidance activities.
It is also when the various representative groups and lobbyists discover the fate of pet projects. So what can we look out for in the upcoming Finance Bill?
John Cuddigan, partner with Ronan Daly Jermyn, believes that we may anticipate new tax initiatives aimed at boosting the marine sector.
He will also be looking to see if the Government acts on a series of recommendations on local property tax just issued by retired top official, Don Thornhill.
We may also expect a raft of changes in the area of entreprise, aimed at boosting entrepreneurship, with new tax credits and relief with respect to share options. A cut in Capital Gains Tax for entrepreneurs has already been announced.
A review of taxes on entrepreneurs has just been published by the Department of Finance. Farmers, possessors of electoral clout, and seen as critical to the national economy, have long benefited from State largesse.
The marine sector could now be in line for attention. The economic consultancy, Indecon, has prepared a review of marine taxation supports. Of particular interest is a plan to promote Ireland as an international centre for ship leasing.
The country is currently the home of at least 70 successful aircraft leasing firms and is now one of the leading, if not the leading, global players in the field. The sector supports around 1,200 high-end jobs.
Shipping services could prove to be another growth area. Last year, around 18,500 full time jobs were supported in marine-related activities, most of them in areas where employment is in short supply.
Indecon has called for the introduction of a system of trust certificates aimed at promoting the country as a centre for ship leasing and is also proposing generous new capital allowances for dockland capital investment activities.
The consultancy also has suggested that the relief from gift and inheritance tax, available to farmers since 1975, be extended to fishing families.
Fishing organisations are also pressing for a change in treatment for tax purposes. At present, fishermen are treated as self employed with the result that they carry higher administrative burdens and have reduced access to social welfare, or the tax credits enjoyed by employees.
You can bet your bottom dollar that the Finance Bill will address issues around housing and the property market.
The Government has sought to bury property tax as an election issue. It will not be reversing engines with regard to the local property tax, put in place in 2013, as this revenue flow is seen as stable and the key revenue source for local government, in the years ahead.
The new property tax resulted in around 1.3m being obliged to file returns in what is the largest extension yet of the country’s system of self assessment. Dr Thornhill has issued 13 recommendations.
He has proposed that payments of local property tax by landlords should not be allowed against income or corporation tax payable by landlords. He has advised against extending the exemption for first-time buyers, owners of property on unfinished estates.
However, income-stressed owner occupiers should continue to enjoy tax relief beyond 2017. The Government will, no doubt, lap up his suggestion that the system of local property tax liabilities be revised so as to ensure that household burdens did not rise.
The Finance Minister Michael Noonan has already moved to reassure householders on this point.
Finance Acts have traditionally contained key measures aimed at entrepreneurs. A review of tax and entrepreneurship has just been published.
It is accepted that start-up enterprises will play a key role in economic development. Irish people have tended to invest in property rather than back local entrepreneurs. Measures have been introduced to reverse this situation.
Start-ups benefit from three years’ relief from corporation tax. This relief has its origins in 1997 legislation. For many years, people were coaxed to invest in companies through the Business Expansion Scheme.
This was replaced by the Employment & Investment Incentive scheme, with relief conditional on meeting targets for job creation and the payment of PRSI by the employer.
Many would like a more radical approach to fostering startups along UK lines, including tax relief up front for enterprises which are typically loss-making in the early years.
Relief of up to 50% from income and capital gains tax is provided for people investing in startups along with a 10% tax rate on the profits earned.
A lowering of the capital gains tax rate, in respect of the disposal of business assets, is provided for in Budget 2016. More details will be provided in the Finance Bill.
But could Michael Noonan be tempted to pull another rabbit out of his hat by targeting a more ambitious scheme at business startups outside the main urban areas?
No doubt many of his officials would baulk at this, but then how many mandarins have to face the verdict of the electorate in a few months’ time?
Noonan may also be tempted to finesse schemes aimed at attracting highly skill, highly mobile people to the country, including returned expats.
A reduced tax rate is offered under the ‘SARP’( special assignee relief ) programme, aimed at foreign-based executives. Many believe the minister should go further and reduce this to 30% while broadening the range of beneficiaries.
This would have obvious economic benefits, but there would be drawbacks, not least the resentment fostered among the rest of the population who would not enjoy such largesse.
It is interesting that department officials have themselves objected to the idea of a low tax rate for entrepreneurs, questioning why their income should be treated more beneficially than earned income.
But perhaps we do need the sort of innovative approach that in the past led to first export sales relief and later the low corporation tax, measures which helped to kick-start investment-led growth, particularly from 1990 on.
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