Stephen Cadogan: Income deferral tool must be a Budget 2017 no-brainer

Maintaining the momentum of economic growth for social recovery has to be the target for Finance Minister Michael Noonan, as he prepares his Budget 2017.

After 6.5% growth in 2015, his Department’s latest projections are for GDP growth of around 5% this year and 4% for 2017.

But events such as Brexit could have an upsetting effect.

The minister will be especially keen to do what he can to keep the ball rolling on employment growth, which has been positive for 42 months, adding almost 160,000 jobs since the low point of the economic crisis, bringing the unemployment rate down to 7.8%.

Therefore, the Food Wise 2025 target to create 23,000 additional jobs in the agrifood sector, from farms up to high value-added product development, must figure high up in his Budget priorities.

The agrifood sector has played its part in sustaining jobs in recent years, with food and drink exports reaching an estimated €10.83 billion in 2015, having increased more than 50% since 2009.

However, just as the economy recovers, the reward for farmers is a wage cut, in return for their hard work in providing the raw material for the export boom.

In their mid-year economic assessment, Teagasc economists this week forecast income reductions across all the main farming enterprises. And it is the farming sector that has contributed most to agrifood progress that faces the biggest income cut.

Such is the dysfunctionality of the Irish agrifood market.

The dairy industry targeted a 50% increase in milk production by 2020, following the abolition of milk quotas in April, 2015.

In return, dairy farmers are looking at a 50% income slash this year.

The current forecast is that the average sized Irish dairy farm could see its income halved in 2016.

Only the cushioning effect of direct payments from Brussels, and income from the other enterprises on the dairy farm, will save the typical dairy farm from 60% to 80% income reduction, in 2016.

It illustrates well how vulnerable Ireland is to swings in economic conditions — a point made by Mr Noonan in relation to our public finances, when he recently revealed that the improved Irish economic situation will enable him to put some €1 billion into a contingency fund each year from 2019 onwards.

He said this can be used to support activity and employment if necessary.

If so, the dairy sector is a prime candidate for attention, in Budget 2017.

Mr Noonan is in the perfect position to help dairy farmers, with taxation tools to deal with their income volatility.

An income deferral tool to allow farmers move their before-tax income from years they need it least, to years when it is most needed, would make next October’s budget a godsend for dairy farmers.

Farmers who they compete against on world markets have such tools, for example, the New Zealand income equalisation scheme, and the Australian farm deposit scheme.

By easing EU State Aid rules, European Commissioner for Agriculture and Rural Development Phil Hogan has opened the way for such schemes here.

If such a scheme was available two years ago, when global milk prices were at a record high, Irish farmers could have put aside part of their high 2014 incomes for the rainy day which has now arrived.

This is what Mr Noonan is doing himself, in creating a contingency fund for the economy, and it seems a no-brainer for him to put the same opportunity in place for dairy farmers, to reduce their exposure to volatile world markets.

Such a scheme could also work well for our grain farmers. Prices for feed grain in Ireland were at €240/€250 per tonne at the beginning of 2008. Now, growers are looking for €135, and say they are looking at losing close on €100 per acre, even on owned ground.

Farmers cannot survive that kind of price volatility for very long.


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