Kites may fly but don't expect any surprises in Budget 2017

Budget day is no longer shrouded in secrecy. We’ve come a long way since 2003, when the then minister for finance, Charlie McCreevy, launched decentralisation on an unwitting populace in his budget speech. Not all of his cabinet colleagues knew what was coming.

Kites may fly but don't expect any surprises in Budget 2017

This year, it will be a surprise if there are any surprises in budget 2017.

Minority government in Ireland is by no means unusual.

As recently as 2011, the Finance Bill was pushed through the Dáil by a minority Fianna Fáil government, and acceded to by a political system that just wanted to get the new taxes out of the way, so they could get on with the hustings.

The mission for 2017 will be to get the Finance Bill out of the way without having to go to the hustings. To do that, the Minister for Finance, Michael Noonan, will have to consult to an unprecedented degree.

He has to manage the minority interests in Cabinet, while ensuring, as is already being reported, that his plans will not be opposed by Fianna Fáil.

Traditionally, in the run-up to budget day, ideas were leaked to gauge public opinion, before they found their way into the budget speech. When such kites were flown by government departments, rather than by the usual lobbying suspects, they deservedly received more interest, as they had inherently greater potential to be implemented.

That mightn’t be the case this year. For instance, the Department of Enterprise, Trade, and Employment was reportedly behind a plan to introduce a special, effective rate of tax for returning immigrants.

Details were scant, but the idea appeared to be that the effective rate of tax which an individual would pay would be limited to 30% of salary for five years.

It wasn’t clear whether the 30% would also include PRSI and USC, but, assuming it did, such a worker, on wages of €100,000, would pay no more than €30,000 to the Government.

The proposal or this piece of kite-flying was subsequently shot down by Taoiseach Enda Kenny.

Original tax ideas are rare, and this idea wasn’t one of them. Similar , ‘come back to Erin mavourneen’ schemes have been operating here for many years.

We are well-used to using tax policy — such as the low corporation tax rate — to bring industry into the country, but we also have a tradition of having income-tax incentives for foreign workers relocating here.

A very powerful incentive, the so-called ‘remittance basis’, collapsed under the weight of its own success some 10 years ago, because it became too popular and was therefore abolished.

A replacement incentive, the Special Assignee Relief Programme, has had limited success.

Other countries also offer relocation incentives.

The Dutch, for example, have a special incentive to bring highly skilled graduates into their country to work. Their version limits the effective rate of tax in the Netherlands to somewhere between 30% and 40% of salary.

Income-tax incentives for returning emigrants help to achieve the social aim of reuniting our citizens with their native country, while, at the same time, increasing the overall income-tax yield.

All else being equal, it is better to have Irish people working and paying income tax in Ireland than working and paying income tax in a foreign country, as long as they themselves want to return home.

But it also creates inequity. Is it right to have two similarly qualified people working side-by-side, with similar earnings, but one paying less tax, because they left the country during the recession?

Perhaps, however, the biggest difficulty with the Department of Enterprise, Trade, and Employment plan is the proposed scope of the relief. While the plan suggests an effective rate of tax of 30%, in reality the vast majority of employees in this country don’t pay tax at anything approaching an effective rate of 30%.

The relief would therefore only be of interest to those individuals working at the upper-end of the salary range, who are just as likely to be motivated by considerations of career progress, as well as tax, when deciding to return to Ireland. If similar kites are to fly, they will need a good gust of wind.

Brian Keegan is director of taxation at Chartered Accountants Ireland

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Wednesday, February 24, 2021

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