As a preface to this commentary, Shannon Chamber would state that Budgets must be judged in the context of the economic climate that prevails at the time, the prospects for the years ahead, and recent historical experience.
The key factors therefore, influencing Budget 2015 were:
- The €30 billion austerity programme that existed between 2009 and 2014.
- Ireland’s general government gross debt/GDP ratio, haven risen to 123% in 2013, is now in decline and is forecast at 111% for 2014.
- The Irish budget deficit remains on a firm downward path. It is forecast to fall to 2.7% of GDP in 2015 and 1.8% in 2016, down from 5.7% last year.
- Exports have been the main engine of growth in the Irish economy in recent years but a recovery in consumer spending got underway this year rising by 1.8% year-on-year in the second quarter.
- Investment activity has risen strongly over the past two years. Business investment rose by one-third and construction spending increased by 10% in the opening half of 2014.
- The impressive economic growth has seen a marked improvement in labour market conditions. Employment rose by 2% year-on-year in the first half of 2014 and there has been a sharp drop in the unemployment rate, which is now down to 11.1% from a peak of 15.1% in early 2012.
- The outlook for the Irish economy is favourable. Economic conditions in key export markets, such as the UK and USA, have improved considerably. The Dept. of Finance sees GDP growth of 4.7% in 2014 and 3.9% in 2015.
This year’s neutral budget is therefore a big shift in the stance of fiscal policy after the severe fiscal tightening implemented in the past six years and its key focus areas are:
- To help cement a growth in domestic consumer spending
- To support employment growth
- To outline a proposed new road map for corporate tax to ensure Ireland remains an attractive destination for foreign direct investment
Shannon Chamber’s and Chambers Ireland’s pre-budget expectations were the inclusion of initiatives to support industry and employment growth. This was met, in part by;
- A strong reaffirmation of Ireland’s commitment to the 12.5% rate of corporation tax.
- The commitment to deal with the “Double Irish” tax situation; this will help improve Ireland’s image and enhance the reputation of Ireland when competing for FDI.
- A commitment to introduce a best in class “Knowledge Development Box” at a low, competitive and sustainable rate.
- The elimination of the base year limitation for the Research and Development (R&D) tax credit.
- Significant improvement of the capital allowances regime for intellectual property.
- Expansion of Ireland’s Tax Treaty network will be accelerated to ensure that companies based in Ireland can continue to compete globally.
- To support SMEs in growing their businesses abroad, Budget 2015 will improve the Foreign Earnings Deduction by extending the list of countries eligible to include Mexico, Chile and certain countries in the Middle East and Asia and reducing the number of days that employees are required to be abroad in a year to 40 days.
- The Seed Capital scheme will be re-launched in the coming months and now known as Start -Up relief for Entrepreneurs. The relief will also be extended to individuals who have been unemployed for up to 2 years.
- The amount of finance that can be raised by a company under the Employment and Investment Incentive is increased to €5m annually subject to a lifetime maximum of €15m.
- Investment in the management and operation of nursing homes, medium-sized enterprises in non-assisted areas, and internationally traded financial services that are certified by Enterprise Ireland, will now qualify under the scheme, extending the inclusion of hotels, guest houses and self-catering accommodation in the scheme by a further 3 years.
- The Strategic Banking Corporation of Ireland, which is expected to be formally launched at the end of this month, will increase the availability of loans of longer duration coupled with more flexible conditions and potentially at lower cost
- The three-year relief from corporation tax on trading income for new companies, introduced in 2009, will be extended to include new business start-ups in 2015.
- TAX RELIEF ON WATER CHARGES – This will help offset part of the cost of water charges and anything that helps increase the net pay of employees is welcomed as otherwise these charges put increased pressure on employers for wage increases to offset these costs.
- The reduced 9% VAT rate has provided great benefits to the economy and has been seen as one of the major catalysts for the significant revival of our key tourism industry and the corresponding jobs increase over the last two years.
- The reduction in the private pensions levy is to be welcomed.
SMEs and entrepreneurs create employment and we must do more to support them if we want to continue to reduce our unemployment numbers. Shannon Chamber anticipated more measures than were delivered in this budget to support that goal. Capital taxes remain too high and a more balanced and urgent focus on the job creating engine of SMEs is required.
We will continue to link with Chambers Ireland in the run up to the Finance Bill to get the best possible measures for small business.
Dympna O’Callaghan – Director, molly d marketing
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