In one of the most pivotal Budgets in the history of Ireland, Budget 2021 contains measures aimed at helping the country to thrive and survive the ravages of Covid-19.

Finance Minister Paschal Donohoe’s words were stirring: “Yes, the test we face is daunting, further demanding choices await. Yes, the uncertainty and anxiety about the future of lives and livelihoods is great. And yes, we will prevail. We will come through this. And from the ashes of the pandemic, together, we will build a stronger, more resilient Ireland.”

The Minister announced a total budgetary package of more than €17.75bn, more than €17bn of which relates to expenditure and €270m in taxation measures.

“We have never experienced a challenge like this in modern times”

The Good News

Capital expenditure

Capital expenditure will increase to €10.1bn, the largest amount ever allocated to investment in schools, homes and public transport.

€3.4bn recovery Fund

The Recovery Fund will be targeted and will help to stimulate increased domestic demand and employment. “It will focus on three main areas: infrastructure development, reskilling and retraining, supporting investment and jobs. It will support both those in employment and those whose jobs have not survived the pandemic,” Donohoe said.

Tax

Minister Donohoe said that there will be no broad changes to income tax credits or bands as “resources must be focused on saving jobs and protecting our health.”

In order to ensure that the salary of a full-time worker on the minimum wage will remain outside the top rates of USC, the ceiling of the second USC rate band will be increased from €20,484 to €20,687, “a move which will give a modest benefit to workers whose income is above that amount.”

To support families with caring responsibilities Donohoe revealed an increase in the Dependent Relative Tax Credit from €70 to €245.

For remote workers where the employer makes payments towards the expenses of working from home, up to €3.20 may be paid to employees without a Benefit-In-Kind arising.

However, where employers do not contribute the worker may claim a tax deduction for utility expenses such as heat and light – and, new for 2020, the Revenue Commissioners have now confirmed that this may include the cost of broadband.

Health

Measures of €4bn have been allocated to health. Some €1.6bn is to be allocated for new developments including additional beds and staff and funding for mental health. There will be extra funding for home care packages to keep people out of hospitals.

The Budget includes €1.3bn to pay for testing and tracing of Covid-19 as well as covering the cost of procuring personal, protective equipment.

Housing

It is understood that the Help to Buy scheme will be extended at its present level which allows up to €30,000 in tax back on a new home.

Up to €500m for social housing is to be made available. Housing Minister Darragh O’Brien is spearheading a €468m affordability programme that includes €110m to be split between affordable purchases and schedule developments.

Corporation tax

Corporation tax rate of 12.5pc to remain in place. Some €7.5bn was generated in corporation tax this year alone.

Education

Education minister Norma Foley, TD, is to bring down pupil-teacher ratios to 25:1 with the creation of 600 new teacher positions.

For full-time third-level students a new €50m fund to provide once-off financial assistance in a measure estimated to be worth €250 to each student.

Research

Some €30m for research including all-island research has been secured by the Minister for Higher Education Simon Harris, TD.

Cash supports for businesses

Minister Donohoe said that there will be a new scheme for businesses that have had to close because of Covid-19 and a maximum of €5,000 per week will be made available. The payment will be based on the 2019 average weekly turnover. It will be effective from today (13 October) until the end of March 2021.

Film and arts

New measures were introduced to support the film industry whose members lost the benefit of the Section 481 regional uplift. The scheme is being amended to provide for an additional year a its peak rate of 5pc and will be in place until 31 December 2023.

Live entertainment

Minister for Public Expenditure Michael McGrath outlined some additional supports for the entertainment sector with €50m in funding being allocated to live entertainment supports and €50m being allocated to the Arts Council, which next year will receive Exchequer support of €130m.

Gaming and animation

Donohoe also revealed plans to develop a tax credit for the digital gaming sector with a view to support activity in this area from January 2022 onward

Climate change

To ensure Ireland can keep up with its climate change targets, carbon tax will be increased by €7.50 from €26 to €33.50 per tonne of CO2. New legislation will be issued to increase the tax each year by €7.50 up to 2029 and €6.50 in 2030 to achieve €100 per tonne.

The Bad News

Deficit

Ireland went into 2020 with a surplus of €1.3bn and a Rainy Day Fund worth €1.5bn. No one could have expected Covid-19’s impact and to date the total support measures rolled out by Ireland amount to €24.5bn, nearly eight times last year’s Budget plan. “We have never experienced a challenge like this in modern times,” Minister Donohoe lamented.

A deficit of €21.5bn, or 6.2pc is currently projected for 2020. “While this is a huge figure by Irish standards, it is a similar level of deficit to what peer countries are borrowing,” the Minister explained.

Job losses

The Department of Finance is forecasting the loss of 320,000 jobs in 2020. While 155,000 of these may be recovered next year, Budget 2021 forecasts a deficit of €20.5bn and acknowledges there is a “high level of uncertainty” about future forecasts.

Unavoidable changes ahead for corporation tax

Despite retaining the 12.5pc corporate tax rate and some €7.5bn being generated this year in corporation tax receipts alone, Minister Donohoe warned that changes are on the horizon for the corporate tax landscape.

The old reliables

Well, Budget 2021 is bad for smokers’ pockets but good for their health. The cost of a packet of cigarettes will rise to €14, with excise duty going up by 50 cents.

Farmers’ VAT

In a likely unpopular move Donohoe said he is increasing the farmers’ flat VAT rate addition from 5.4pc to 5.6pc with effect from 1 January.

Capital Gains Tax

Despite Ireland having the highest Capital Gains Tax rates in Europe, seen as a tax on entrepreneurs, some changes were made in Budget 2021. In relation to Capital Gains Tax Entrepreneur Relief, Budget 2021 amends the ordinary share holding requirement so that an individual who has owned at least 5pc of the shares for a continuous period of any three years qualifies for this relief. Previously, a person had to own at least 5pc for a continuous period of three years in the five years immediately prior to the disposal. The question remains if this is “peanuts” or likely to be a game-changer in terms of encouraging share options in SMEs or boosting rewards for Irish entrepreneurs.

Cost of petrol, diesel and motor tax to rise

There were major changes for motorists in Budget 2021. The most immediate is an extra €1.51 for a tank of diesel and €1,000 on the price of an average new car.

Owners of older cars will be increasingly out of pocket as Minister Donohoe revealed a modified new structure of rates and bands will be put in place with lower VRT rates for cars with lower emissions. Nitrogen oxide surcharge bands will be changed so that higher emitting vehicles pay more.

Effectively, Ireland is transitioning towards the new more robust Worldwide Harmonised Light Vehicle Test Procedure (WLTP) emissions system from January 2021 that will reflect more “real world” performance levels. Under this new test cars record higher emissions.

“We have strengthened the environmental rationale of the VRT regime to encourage motorists who are in the market for a new car to make greener choices. To create a level playing field between new cars and used imports, which have been subject to different emissions tests, I am ensuring that used imports subject to the weaker emissions test will have their CO2 values uplifted to a level equivalent with the WLTP test to which all new cars are subject.

“VRT reliefs for Plug-in Hybrid Electric Vehicles and hybrids will be allowed to expire having regard to the fact that there will now be much lower VRT rates for low emission cars.”

Donohoe also said he planned to taper reliefs for battery electric vehicles.

He said he is also adjusting the Nitrogen Oxide (NOx) bands so that higher NOx emitting vehicles will pay more.

By John Kennedy (john.kennedy3@boi.com)

Published: 13 October, 2020

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