It’s a bit of a head-scratcher in places, this Budget.
Given the resources available to the Government at this time, there was always going to be a balance between once-off cost of living measures and longer-term boosts to net income (USC reductions, increases in tax bands, the minimum wage increase).
The latter measures are vital, because they are permanent, reflecting the way inflation generally represents permanent increases in the prices of basic goods and services. The only question is why such increases are not just indexed automatically.
Conservative in the face of uncertainty
Given the global uncertainties, there was always going to be a degree of conservatism. Where do Irish corporation tax receipts go in the face of a global slowdown, China’s evolving position and the geopolitical disasters in Ukraine and the Middle East?
It is a lot to think about, but smart moves such as increasing the research and development tax credit show we remain open for business and ready to compete.
Minimum tax rate for larger corporates
The Finance Bill will be a busy place when it is published next week. Amongst other matters, the Minister confirmed that it will include legislation introducing the new global 15% minimum tax rate for larger corporates.
Effectively, this will represent an entirely new and separate corporation tax regime with its own independent set of rules that will operate in parallel and on top of our existing regime. Aside from the tax rate, the administration required to operate this will be enormous, but you only have to worry about it if you have sales of over €750m.
We need to nurture the long-term success of all of the smaller businesses that strive on a daily basis to be more than they could be.
More ambition needed
But what we really need is the unabashed ambition to create more and more Irish-based and Irish-owned businesses that lead the world and hit up against that €750m mark. We need to nurture the long-term success of all of the smaller businesses that strive on a daily basis to be more than they could be, to be their best selves.
Conservatism does have its place – as we are constantly told at the moment, defences win world cups. That indeed may be the case, but not on their own. Ultimately, they are judged on the quality of the attack they enable and unleash. And here the head scratching starts.
Capital gains tax retirement relief
A case in point is the “extension” of capital gains tax retirement relief on passing the family business. The age cap is extended to 70, but now it is subject to an overall value cap of €10m. The extension to age 70 is welcome, if limited – it is still ageist and ignores diverse family formations.
However, the introduction of the cap increases the tax rate on family succession planning in any slightly larger business from 3.3% to 33%. No operating business of any size can survive and grow with a 33% levy on its value. The message seems to be, we like success but not too much, like!
Employment incentive investment scheme
On the other hand, there are some improvements in the employment incentive investment (EII) scheme. The incentives for small landlords are also welcome and speak to that particular need across the country. There is a wall of investible cash held by Irish people at the moment, and deposit interest rates are lagging inflation by a wide margin (as they generally do).
Improvements such as these help to persuade individuals to invest differently and locally, and to take the extra risk inherent in such investments – a risk taken that is often ignored in populist commentary.
Investor relief
One interesting innovation in the Budget is the new relief for angel investors. This is extremely speculative investment made in businesses at a very early stage. Indeed, it is fair to say that most angel investments end up as losses for the investor and the only way to make a profit is for one to pay out spectacularly to cover the losses elsewhere.
Yet, such investment is absolutely essential to ferment the entrepreneurial pool and seed the businesses that ultimately succeed. But for the faint hearted, it is not. The detail of how the new 16% (or 18%, depending) rate will apply will be set out in the Finance Bill. Initial indications are of a useful innovation that runs the risk of being so circumscribed as to be of limited practical use.
Tax on investments
Other areas that remain on the radar include the review of the taxation of investments generally. This consultation is ongoing and will hopefully yield results over the next few months.
Interestingly the Minister also singled out for further review and engagement how the fiscal system might be used to stimulate domestic Irish philanthropy and thus create partnerships for development across society.
A pedestrian Budget
But in total it feels a bit pedestrian, a bit defensive. In all cases, Government policy for business should show undaunted ambition – to be more successful and to lift Irish business to heights unimagined. To use a bit of French (albeit from Frederick the Great), “Toujours l’audace” – always be bold – especially when playing defence!
This article originally appeared in The Irish Independent and has been reproduced with their kind permission.
Queries? Get in touch
The measures announced in Budget 2024 will affect businesses and individuals across Ireland. If you have any queries on the impact of these changes for your business, please contact Liam Lynch of our Tax team.
We'd be delighted to hear from you.
Liam Lynch
Partner
KPMG in Ireland
