This latest austerity budget may be the last, or at least the Minister hopes so. He is targeting a 2% growth rate next year which is aggressive. His basis for this is that while there were expenditure cuts and tax increases of €2.5bn, there was also a stimulus package of €500m.
There were no changes to tax rates or indeed any tax changes that would impact on a person's take home pay, which should encourage people to spend more. The Minister hopes to build on the recent increase in tourism by extending the 9% VAT rate and abolishing the travel tax. He also announced a number of incentives to boost the construction sector.
Who paid for these? The banks suffered with a return to a bank levy of €150m and a sharp increase in the DIRT rate. There were expected changes to pensions as well as unexpected changes to tax relief on medical insurance. Individuals, particularly those with non-employment income will find they are paying more tax next year.
The Minister published a separate document on Ireland's international tax policy. He stated that "Ireland will play fair and play to win" and committed that we will maintain our competitive position for international business.
In many respects, this is the first post-bailout Budget. Much of the heavy lifting to reduce the deficit is done but most of the legacy of the crisis in terms of unemployment is still with us. The key question is how the Irish economy can return to healthier growth. By not shocking fragile domestic demand and by helping job intensive areas such as tourism and construction, Budget 2014 should help.
The Minister announced 25 pro-business measures. He focussed on three main areas: tourism, construction and startups. To encourage startups he has introduced a CGT relief for entrepreneurs, although to qualify it does appear that you have to build and sell two businesses. He has extended the R&D credit which will be worth a further €25,000 to every business. Cashflow is critical for small business and the increase in the VAT threshold for cash receipts will help all businesses with a turnover of less than €2m. Larger businesses were mainly unaffected, with the exception of banks, who may feel they have paid for the reliefs for others.
International companies will welcome the Minister’s comments that Ireland is open for business and will maintain its tax competitiveness while being “part of the solution to the global tax challenge and not part of the problem”.
The headline rates of income tax, PRSI or USC haven’t changed, but we did see big changes in pension limits. This will be of particular interest for people planning for retirement. The budget also brought some surprises including the abolition of top slicing relief on termination payments, reduced levels of medical insurance relief and the extension of PRSI to investment income.
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Jean Delaney is a Partner at PwC Ireland and an international tax expert who has 25 years’ experience in the pharmaceutical/life science sector. She leads PwC Ireland’s pharmaceutical/ life science practice, a cross-discipline team of 10 partners and 75 staff. The team serve major medical devices and pharmaceutical clients with significant operations in Ireland and abroad.
Jean acts for a number of household names in the pharmaceutical/life science sector including US, UK and Irish headquartered multinationals. She helps companies on their international expansion strategies - to maximize their after tax returns through robust IP strategies, inversions, debt planning, global structure alignment and R&D tax credits. Jean’s cross border and international experience also includes direct and indirect tax planning for principal companies and supply chain operations including VAT and customs & excise.
Jean is a member of PwC Ireland Tax Leadership and is the partner in charge of PwC’s Tax Services for Inbound companies leading a group of 8 partners and 70 staff.
Jean is an Associate of the Irish Taxation Institute and and a Fellow of the Institute of Chartered Accountants in Ireland.
T: +353 1 792 6215
Mary O'Hara is a partner in the tax services practice and specialises in HR services, a team which assists organisations manage the financial, tax, regulatory, operational, risk management, and strategic challenges associated with human resources.
Mary has extensive experience advising global organisations on employment tax, global mobility and workforce issues including immigration, taxation, social security and reward.
Mary is a Fellow of the Institute of Chartered Accountants in Ireland. She is an active participant in PwC's European Reward Advisory Network and Global Immigration Network.