Farmers need budget tax reliefs and incentives in this, their hour of need
Each year, most of our farm organisations forward a wish to the minister. In the last five years there has been little room for generosity for any sector. The past five years have been about new taxes, jacking existing rates, and cutting reliefs.
For example, inheritance tax rates have rocketed up to 33%, from 20%. The tax-free inheritance thresholds have also been slashed — at the height of the boom, a parent could transfer over €500,000 worth of property (cash/shares/rentals, etc) before that child became subject to inheritance tax. Now, the tax-free threshold from parent to child is €225,000. These changes, especially for capital gains tax, inheritance tax and stamp duty, make tax planning even more important.
There are still some reliefs, and of particular benefit are the agricultural relief and business relief. To be fair, there have been limited reliefs introduced in farming, even within our tight financial constraints, such as the capital gains tax farm restructuring relief. In terms of the adjustments over the past few years, there has also been a similar increase in the rate of capital gains tax, also from 20% to 33%. A capping of the amount of capital gains tax relief, at €3m, from parent to child, has been introduced where transfers are undertaken after the age of 65. On the stamp duty side, the relief for farm restructuring was abolished and the half-rate reduction to stamp study, applicable to family transfers, is also set to expire from the end of 2014.
On the income-tax side, the introduction of the income levy, and the successive introduction of the universal social charge, added significantly to income tax rates. Coupled with the doubling of PRSI rates for self-employed, the combined effect has been to increase the top tax rate, to a fairly sickening 52%, with rates rising even higher, to 55%, for the self-employed earning more than €100,000. Back in 2008, the top tax rate was 46%. A study entitled The Distributional Effects of Austerity Measures: A Comparison of Six EU Countries, by the EU’s Social Situation Observatory, examined how austerity measures have impacted household disposable income from 2009 to 2011. Ireland is an outlier, markedly at the bottom.
The reductions in disposable income for all classes of Irish people are more dramatic compared to cuts imposed in countries such as Greece, Portugal, Spain, Estonia and the UK.
We now have the fifth-highest tax rates out of 34 OECD countries. But even this statistic doesn’t express how penal our tax system has become.
For instance, a single person hits a combined income tax, PRSI and USC rate of 52%, once wages or profits exceed €32,800 per annum. In contrast, a German only hits a tax rate of 47.5% once their income exceeds €258,745. “High tax” countries, such as France, the Netherlands, Germany and Luxembourg, all have higher entry points than Ireland before an individual pays tax at the high rate, and each of these countries has lower rates of taxes on income than Ireland. The recent agri-taxation review generated positive ideas that could make taxation of our farming sectors most efficient.
Most participants recognised that the review couldn’t deliver any overall reduction in the tax take from the sector. However, the review was a forum to explore the huge opportunities for tax reliefs and incentives to assist farmers in their times of need — this is particularly relevant at present, with both income volatility and expansion creating pressures. Although the overall tax burden may not change much after the Budget, let’s hope any changes will only serve to strengthen agriculture as a key cornerstone of our economy.
