Budget 2019 Summary and Key Highlights

10 October 2018

Pascal Donohoe delivered his second budget yesterday, 9 October 2018. In the context of forecasted growth in GDP of 7.5% in 2018 (4.2% in 2019), he presented his Budget as one in which the Government will manage the public finances responsibly, provide capital investment to enhance growth and improve quality of life, protect the most vulnerable and promote real and sustainable increases in living standards for all and prepare for Brexit.

 

COMMITMENTS

Budgeted spend for 2019 is €66.5bn, of which €59.2bn will comprise current expenditure and €7.3bn capital. Some of the key spending commitments are:

Housing and Homelessness
A lack of housing and record levels of homelessness are key challenges facing Irish society today. Acknowledging that “where we find ourselves today is not where we want to be”, Mr Donohoe noted that there “is much work to be done to reduce the level of homelessness, find permanent solutions for those in temporary and emergency accommodation and to improve affordability for those on low and middle incomes”. He announced an allocation of €2.3bn to the housing programme for 2019, and a number of initiatives:

  • Allocation of €1.25bn to deliver 10,000 social homes in 2019;
  • A €100m Serviced Sites Fund to support local authorities bringing forward lands for subsidised affordable housing;
  • €121m for Housing Assistance Payments; ▪ €60m to fund additional emergency accommodation and €30m for homelessness services.
  • Removal of the interest restriction on borrowings to purchase, improve or repair rented residential properties from 1 January 2019.

Health
The Minister announced an increase in the health budget for 2019 of €1.05bn taking it to €17bn, allowing for increases in weekly income thresholds for GP visit cards, reductions in prescription charges and monthly Drugs Payment Scheme threshold, as well as increases for Mental Health Services and Disability Services.

Social Welfare
Increases in weekly social welfare payments of €5 per week will come into effect from March 2019 together with restoration of the Christmas bonus payment, two extra weeks’ leave to every parent of a child in their first year and support for working families through earnings disregards were announced, as well as increases in the Qualified Child Payment and increases in the Back to School Clothing and Footwear Allowance rates.

Education
The Minister allocated €10.8bn to Education in 2019. This will fund, additional posts including special needs assistants and an increase in the standard capitation rate of 5% per pupil.

Further increases of 0.1% in the National Training Fund levies in 2019 and 2020 were announced to provide targeted investment in providing traineeships and other targeted learning opportunities as well as a “multiannual, ring-fenced Human Capital Initiative” of €300m over the period 2020 to 2024, which will increase investment in higher education courses across the country.

Supporting Business

  • Future Growth Loan Scheme for SMEs and the agriculture and food sector to a value of €300m, to be introduced in new legislation;
  • Brexit measures allocation of €110m across a number of Departments, including funding for essential customs requirements and a range of other targeted measures
  • Disruptive Technologies Innovation Fund, which makes €500m available for cofunded projects involving enterprise and research partners over the period to 2027.

Children and Youth Affairs
An additional €127m has been allocated to the Department of Children and Youth Affairs in 2019, which includes an increase in funding for early learning and childcare by just under €90m to €574m to support the ECCE PreSchool Programme and the ongoing development of the Affordable Childcare Scheme.

Income thresholds for the Affordable Childcare Scheme are to be increased, to assist families in accessing childcare and encourage people back into the workplace.

Rainy Day Fund
The Minister confirmed that he was establishing the “Rainy Day Fund” to increase the State’s resilience to larger economic shocks. The Fund will be capitalised with €1.5bn from the Ireland Strategic Investment Fund and supplemented with an annual contribution of €500m from the Exchequer starting from 2019. In this regard, the Minister identified that €0.7bn of the 2018 overperformance in Corporate Tax Revenue is estimated as a one-off arising from changes in international accounting standards (IFRS 15). Some of this revenue will accordingly be set aside for the Rainy Day Fund and does not feature in projected receipts for future years.

 

TAXATION CHANGES

VAT
The VAT rate for the tourism and services sector will increase from 9% to 13.5% from January 2019. The Minister noted that the stimulus created by the reduced rate of 9% introduced in 2011 had “done its job” and that it was now appropriate to increase it again. This measure is forecast to raise €466m in 2019. This increase in VAT, coupled with the rise in the minimum wage, will likely pose a challenge to many in the hospitality sector in 2019, especially in the shadow of Brexit. However, the Minister did allocate a further €35m to the Department of Transport, Tourism and Sport to provide more targeted supports for the sector.

The 9% VAT rate for sporting facilities has been retained and good news for Kindle users: the VAT rate on e-books and electronically supplied newspapers will be reduced from 23% to 9% from 1 January 2019.

Corporate Tax – New Exit Tax to be introduced
The Budget introduced a new Exit Tax regime, as part of Ireland’s commitment to implementing the Anti-Tax Avoidance Directive (ATAD), which came into effect from midnight. The Exit Tax will apply a rate of 12.5% on any unrealised gains arising where a company migrates or transfers assets offshore, such that they leave the scope of Irish taxation.

The Minister will introduce new Controlled Foreign Company (CFC) rules, in line with the Anti-Tax Avoidance Directive (ATAD) in the Finance Bill 2018, to apply for accounting periods beginning on or after 1 January 2019.

Corporate Tax – Start-Up Companies and SMEs
Acknowledging that take up on the Key Employee Engagement Programme (KEEP) has been less than expected, the Minister has announced an increase in the ceiling on the maximum annual market value of share options that may be granted to 100% of salary, replacing the three year limit with a lifetime limit and increasing the overall value of options that may be awarded per employee from €250,000 to €300,000.

There will be an extension of the three year tax relief for certain start-up companies until the end of 2021.

Mr Donohoe signalled an intention for the Department of Finance to review, in conjunction with the Central Bank, the regulation of crowdfunding in Ireland, including the appropriate withholding tax obligations which should apply for peer-to-peer lending activities.

Capital Acquisitions Tax
The lifetime Group A tax-free threshold which applies to transfers between parents and their children will increase from €310,000 to €320,000.

Income Tax and USC
The stated aim of income tax changes in this year’s budget was to target measures to reduce the tax burden on “low to middle income earners”. Accordingly, the Minister announced:

  • An increase in the entry point to the higher income tax band by €750 for all earners (€34,550 to €35,300 for a single worker); ▪ A reduction in the third rate of USC from 4.75% to 4.5%; ▪ An increase in the minimum wage to €9.80 per hour;
  • The ceiling for the second rate USC band to increase from €19,372 to €19,874 (to ensure the salary of a full-time worker on the minimum wage will remain outside the top rate of USC);
  • An increase in the weekly threshold for the higher rate of Employer’s PRSI from €376 to €386 (similarly, to ensure there is no incentive to reduce working hours for minimum wage full-time workers).

Other measures include an increase in the home carer credit of €300 to €1,500 per annum and an increase in the self-employed earned income credit to €1,350.

VRT
A 1% VRT surcharge is being introduced for diesel engine passenger vehicles registering in the State from 1 January 2019, whilst the VRT relief currently available for conventional hybrids and plug-in electric hybrids is being extended for a period of one year, until end 2019.

Customs & Excise
And finally, the old reliable: excise duty has been increased on tobacco products again this year with an additional duty of 50 cent per pack of 20 cigarettes.

 

For further information on this topic please contact:

Nicola McGrath
Partner Corporate & Banking
D: +353 1 202 6459
E: nmcgrath@efc.ie

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