Budget 2017 surprises will be few and far between

With the budget just a week away now, we already know what to expect as substantial details of what will be contained in it are already in the public domain, write Elaine Loughlin and Daniel McConnell

Paschal Donohoe

Leo Varadkar slipped up yesterday in front of the media.

“The budget will be announced next week by Paschal Donohoe and Micheál Martin…well almost,” he said in error before he corrected himself.

With the budget just a week away now, substantial details of what will be contained in it are already in the public domain.

Finance Minister Michael Noonan and Public Expenditure Minister Paschal Donohoe are operating in an unusual situation where the main opposition party is demanding its stamp be put on the €1bn package of new spending and tax cuts.

Noonan has just over €300 million available to implement all tax measures. Among the changes planned are increased tax breaks for landlords, a rise in the threshold for inheritance tax, a marginal increase on the price cigarettes to bring them above €11 a packet and a reduction in income tax for the self-employed.

But the big ticket item is USC which the Government will begin phasing out from this budget onward. It is expected that the two lower rates of USC will both be reduced by 0.5%, to 2.5% and 0.5% respectively. Noonan could also increase the threshold at which people begin paying USC from just under €13,000 to as much as €17,000.

Michael Noonan

However, Fianna Fáil, which will be relied upon to pass the budget, is concerned that the USC options put forward by Noonan do not go far enough to help the so-called “squeezed middle” and has asked that proposals be redrafted. Noonan will meet Fianna Fáil finance spokesman Michael McGrath this week before finalising tax measures.

The threshold at which children pay inheritance tax is expected to rise by anywhere between €20,000 and €40,000, which could mean the first €320,000 of inheritance is not liable for tax. However, there will be no increase in the thresholds relating to other family members and non-blood relatives.

Landlords will receive a tax relief in a bid to help provide more accommodation to the rental market.

The Government is looking at increasing the amount of mortgage interest eligible for a tax deduction from 75% to 80% next year. This would be brought back up to 100% within five years.

Measures to equalise tax rules for the self-employed could cost around €40m. It is expected that the €550 tax credit for the self-employed will be doubled, meaning they would pay €550 less in income tax each year.

The budget is expected to contain a special deal for farmers who currently pay income tax based on average earnings over five years. This would be changed to allow farmers to pay less tax in years where they suffer a decrease in income to reflect their actual margins for that year. This would especially benefit dairy farmers who have seen milk prices plummet in the last 18 months.

Start-ups will be encouraged through a reduction of around 10% in capital gains tax — a measure contained in the Programme for Government.

Although details of a sugar tax are expected to be announced the introduction of the levy will be delayed until 2018.

Excise on diesel is now unlikely to jump after Fianna Fáil strongly opposed any increase.

For his part, Donohoe has a tougher task to make his numbers work.

Paschal Donohoe

Even though he awarded health €500m extra earlier in July, word is the ever troublesome department will need more funding again for next year.

Overall spending in 2017 will be €1.7bn higher than in 2016.

This is made up of roughly €900m to deal with demographic pressures (increased class sizes, old age pension etc), the cost of the Lansdowne Road Agreement for 2017 with the remaining left for new spending measures.

A working figure of €610m in current spending is what people believe is the amount with a smaller amount being given over to capital spending.

Aside from the health pressures, Donohoe is having to weigh up mounting public sector unrest over the issue of pay.

While increases will be contained, as determined under the terms of the Lansdowne Road agreement, Donohoe is having to deal with the spectre of strikes in several sectors.

Meanwhile, Enda Kenny has made it known that the budget will sanction 800 additional gardaí and 650 nurses to deal with increased population.

The Government looks set to agree a new childcare package for young parents but there is some concern that it will not go far enough. Some €100m looks to have been secured to give some relief to parents earning up to €55,000.

But in line with the “confidence and supply” deal with Fianna Fáil, Donohoe is also facing calls from Micheál Martin to increase the funding for third level by €100m. Sources have said this could prove difficult to deliver upon and Minister Richard Bruton hinted as much yesterday.

While there has been some speculation that Noonan and Donohoe will manage to magically find an extra pot of money in the end, the figures being spoken about are modest, €150m or so. Certainly nowhere near the €1bn they found last year.

Further intense discussions between Fine Gael and Fianna Fáil will continue, but the political quagmire the country finds itself in means there will be little or no surprises next Tuesday.

What we know

What Michael Noonan will do in the budget:

USC:

Cuts to lower rates of USC and speculation he will increase entry points.

Both to be reduced by 0.5% to 2.5% and 0.5% respectively.

Self-employed:

A €550 tax credit for the self-employed looks set to be doubled, at a cost of around €40m.

Inheritance tax:

Threshold to increase by anywhere between €20,000 and €40,000, which could mean the first €320,000 of inheritance is not liable for tax.

Landlords:

Increasing mortgage interest eligible for a tax deduction from 75% to 80% next year, and up to 100% within five years.

Housing:

Tax rebate for first-time buyers of between €5,000 and €15,000, with Simon Coveney wanting it to be for new homes only.

What Paschal Donohoe will do in the budget:

Public services:

Budget will sanction 800 additional gardaí and 650 nurses to deal with increased population.

Public sector pay:

Restoration of pay under Lansdowne Road, plus additional restoration for some teachers.

Childcare:

A childcare package worth in the region of €100m is likely for income earners up to €55,000.

Old age pension

Fianna Fáil have led charge for a €5 rise, which looks set to be agreed.

Health:

Approximately €20m for the National Treatment Purchase Fund as demanded by FF, plus increases in therapy services, especially for disabled children.

Third-level:

Fianna Fáil are looking for €100m extra for third-level funding, but doubt remains if it is achievable.