What Budget 2022 means for farmers and how stealth taxes will impact

The upward trends in fuel, and natural gas prices, as well as the expected significant lift in feed and fertiliser prices for the coming season is worrisome

This year’s budget was a bit of a damp squib. Let’s be grateful though that the Government didn’t decide to go on a tax-collecting rampage to shore up this year’s budget deficit.

However, there are a number of areas where farmers will end up paying additional stealth taxes. Perhaps the most significant of these tax hits will come in the form of the adjustment of the flat-rate Vat addition from 5.6% to 5.5%.

For a dairy farmer milking 100 cows, the flat-rate addition adjustment might reduce farming income by about €250. Carbon tax on agri diesel has already been locked and loaded as a result of last year’s budget at €7.50 per ton, albeit the effects of that increase won’t come into effect until May 1 of next year — that additional carbon tax will add about 2 cents to the price of a litre of green diesel. 

For the average farmer using 3,000-4,000 litres a year, the impact will be about €60-€80. However, farmers are entitled to a double deduction for the amount of carbon tax within their agri diesel bills, as such the full impact might not be as bad as could be.

However, the impact of that increase in diesel prices will of course affect agricultural contractors, who in turn will pass the charge on to farmers through higher charges. Of course, the extra carbon tax will affect road diesel and petrol prices from Tuesday midnight without the double deduction giving an immediate impact.

Marginal increases in the earned income tax credit and lower rate tax band will generate tax savings for higher-income earners by €350 per year. The USC rates are being held as is, albeit a slight increase in the mid-rate tax USC tax band.

Similarly, no changes are set for 2022 in respect of self-employed PRSI rates. 

There is no proposed adjustments to capital gains tax rates or exemptions, or gift and inheritance tax rates and reliefs. Stock relief and young trained farmer stamp duty relief’s are extended for one year pending EU agricultural block exemption rules on state aid allowing for a further extension beyond 2022 as indicated by Paschal Donoghue. 

There was no changes to the stamp duty rules either this year.

Radical changes

To be fair to the Government one can understand that perhaps now is not the right time to make radical changes to Ireland’s taxation system given the fragility that may exist in how Ireland recovers from the pandemic, as such the resulting stability of the tax system extended in 2022 is somewhat welcome.

Farmers with zoned land will be concerned with the announcement that a 3% charge will be imposed on land which is zoned residential or partially residential, where such land is serviced in order to encourage mobility in getting such land developed. 

It is not entirely clear at this point how the term ‘serviced’ is to be interpreted and landowners will have a two-year period before the tax becomes applicable.

Within the Budget on the downside, farmers continue to operate in a volatile environment but have no taxation tools to encourage cashflow management of the vagaries of this volatility. 

The most significant factors affecting farmer profitability for the next number of years will be as a result of changes foisted upon them and market forces yet there is nothing within this Budget that will provide any cushion for these changes.

The upward trends in fuel, and natural gas prices, as well as the expected significant lift in feed and fertiliser prices for the coming season is worrisome. Had farmers the capacity to defer income from 2021 into a tax saving scheme the incentive to splurge the profits of 2021 with a view to obtaining a tax deduction in a year where profits are high would evaporate.

Despite calls for a variety of different schemes from the like of ICOS and farm organisations over many years, no such schemes have got traction.

Other notable absences from the budget include additional incentives for farmers to invest in health and safety expenditure, or farmyard waste and slurry storage through accelerated allowances to encourage farmers to deal with these two critical areas for farm welfare and environmental welfare.

The finance bill will be published in due course and any finer changes not announced in the budget may be revealed at that point.