Why the carbon tax gives Irish grain a built-in higher cost base
The carbon tax on diesel further disadvantages Irish farmers who are trying to compete on a global level, and perhaps none more so than Ireland's tillage farmers, who are expected to produce grain with a built-in higher cost base than other farmers.
The budget was like a storm — it came and went, but left a trail of damage when it came to farming.
The main changes which will affect farmers are the drop in the flat rate percentage from 5.1% to 4.5% for 2026. This is set to cost farmers €61m over a calendar year, and for an average dairy farmer supplying 550,000 litres of milk, the drop in VAT could reduce farm profits by €2,000 per holding.
For an average beef farmer finishing 40 cattle per year, the cut in VAT could cost up to €600 per year. The drop in VAT will have a direct impact on bottom-line profits across the board.
There was little by way of tax benefits to farmers arising from the budget other than an extension to existing farm reliefs which have been rolled over for many years, including young trained farmer stamp duty relief, farm consolidation relief and farm restructuring relief.
The majority of the tax allocation in the budget went toward the drop in VAT applicable to apartments and the drop to 9% for elements of the hospitality sector. The total Department of Agriculture spend is set to increase by €162m on the current expenditure side, and €164m on the capital expenditure side.
This includes an allocation of an extra €20m to farmers who benefit from Acres, with disappointing clarifications from the minister for agriculture that the scheme remains closed, and €85m toward the bovine TB action plan.
To be fair, the increase in spending is coupled with a real determination across stakeholders to address TB, and hopefully, there will be tangible reductions in the incidence of TB.
The increase in carbon tax for farm diesel has been baked into the budget process, with steady increases each year up to 2030. This continues to be a bugbear for farmers and more especially agricultural contractors who have effectively no options to reduce their use of diesel in carrying on their vital business in the support of Irish farming.
The carbon tax on diesel further disadvantages Irish farmers who are trying to compete on a global level, and perhaps none more so than Ireland's tillage farmers, who are expected to produce grain with a built-in higher cost base than other farmers.
The expected introduction of a carbon tax on imported fertiliser, along with limitations on the chemistry and fertiliser inputs, puts Irish tillage farmers at a disadvantage to operators in non-EU countries who are not subject to such restrictions.
The increase in the Revised Entrepreneur Relief limit for reduced capital gains (10% tax rate) is increased from €1m to €1.5m, which is welcome as an incentive to build businesses, but the overall cost of operating in business is increasing at a significant rate thanks to an increase in the minimum wage, which typically has a knock-on effect throughout the payroll chain, but also due to the added costs of pension auto-enrolment and a rise in employers PRSI.
Further costs are coming down the track as EU rules will require live real-time VAT reporting for business-to-business transactions by 2030.
For VAT-registered farmers and contractors, many of whom continue to rely on paper invoicing and who are not typically software heavy, the real-time reporting will result in real costs, as manual systems will need to move online.
For me, it’s a perpetual disappointment that the budget doesn’t bring radical reform. For a country reliant on imported labour, the tax system squeezes up to 52% tax plus 11.25% employers' PRSI out of every euro of overtime worked by an employee who is paid at the higher rate of tax?
If, as a country, we wish to incentivise productivity, or incentivise people or employers to operate in certain key sectors, or even give the squeezed middle the capacity to work their way out of the cost of living squeeze, then tweaking our tax system is perhaps the easiest and most efficient way of shifting the dial. Imagine if a super low rate of 25% tax on overtime were introduced, now that would be a game-changer.
On the farming side, there have been calls for an income volatility tool for more than a decade to address the significant swings in farm income that has been a feature of global markets. There has also been an ask to address succession and issues around land ownership as a means of passing wealth.
Radical thinking is badly needed or we will continue to see the erosion of family farm viability. Budgets have a tendency for slow and gradual change, and not always addressing issues that persist. Let’s hope there is the fiscal space to try something different in next year’s budget.
