Michael McGrath and Paschal Donohoe have just delivered their first budget against a backdrop of Covid-19
Paschal Donohoe and Michael McGrath have delivered their first budget against a backdrop of Covid-19 and the prospect of a no deal Brexit.
The term ‘unprecedented’ is used quite a lot these days but in Fiscal terms this budget package of €17.75 billion truly is ‘unprecedented’, it’s the largest budget package in the history of the State. Total expenditure this year would be more than €87 billion, the largest bill for running the State in its history, pushed up by about €16 billion of extraordinary spending to cover the economic and social costs of the coronavirus pandemic.
As we are currently experiencing the lowest interest rate environment in history, the government have correctly decided to take advantage of this and borrow heavily in order to sustain the Irish economy.
It was quite a strange budget in some respects. Usually, it is all about either tax cuts or tax hikes making the headlines. However, this year, it’s all about public spending. The government spent heavily in this budget but to the average worker, there seems to be very little change. This budget is all about Covid-19, housing, health, Brexit, and climate change, let’s take a more detailed look at some of its contents.
For the majority of people the biggest impact on their pocket is usually seen by potential changes in PAYE income tax. This year there were no changes to Income Tax rates or bands but there was a slight change in USC Bands. 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 those on the minimum wage. There were also some additional efforts made to address the imbalance between the taxes treatments of the Self Employed compared to PAYE workers. As the final part of a 3 year strategy there was an Increase to the Earned Income Credit for the self-employed and certain proprietary directors which increased from €1,500 to €1,650. This now equalises the earned income credit with the PAYE and Self-Employed.
The Employment Wage Subsidy Scheme is to be extended to the end of 2021. The Debt Warehousing Scheme is due to be expanded to include the balance of income tax for 2019 and 2020 preliminary income tax liabilities.
A new Covid Restrictions Support Scheme is to assist businesses whose trade has been significantly impacted as a result of Level 3 restrictions and the first payments will commence mid-November. The announcement of a reduction in the VAT rate from 13% to 9% effective from Nov 2020 till the end of 2021 will be widely welcomed by the beleaguered Hospitality and tourism sector. There is a further commercial rates waiver for the final quarter of 2020, providing significant relief to businesses.
The full rate state pension (contributory) will remain the same at €248.3 per week or €12,911 pa, however, it has been confirmed that the scheduled increase in the State Pension qualifying age from 66 to 67 due on 1 January 2021 has been deferred. This means that someone reaching 66 during 2021 will be entitled to the State Pension, subject to meeting the qualifying conditions.
This budget aims to encourage lower emissions with an increase in Carbon Tax of €7.50 per tonne of (CO2). This resulted in an increase in petrol and diesel prices which came into effect last wed. New VRT and motor tax rates from 1 January 2021 to align with international standards. Lower VRT rates will apply to lower emission vehicles while the existing reliefs for hybrids and plug-in hybrids will expire.
Unfortunately a reduction in the Capital Gains Tax rate from 33% which was flagged by many commentators did not materialise, such a move would have encouraged economic activity, allowing for the disposal of potentially unproductive assets and could encourage sales and speed up the decision-making process. This was a missed opportunity, when Minister Mc Creevy cut the tax in 2002 this resulted in the yield being quintupled.
There were small changes made to the eligibility criteria for Capital Gains Tax Entrepreneur Relief, which gives a reduced rate of CGT of 10% on gains from the disposal of qualifying business assets. Previously, an entrepreneur had to own at least 5% of a company for a continuous period of 3 years, in the five years immediately prior to the disposal. Now however, they must have just owned at least 5% for a “continuous period of any 3 years”.
Property: There were no changes to the rates of stamp duty on Residential & Commercial property. The enhanced Help to Buy scheme which was introduced as part of the Government stimulus package in July 2020 is to be extended to 31 December 2021. These enhancements increase relief from 5% of the property value with a maximum cap of €20,000, to 10% with a cap of €30,000.
Barry Kerr BBS QFA CFP® is the owner of Wealthwise Financial Planning in Block C, Hartley Business Park, Carrick on Shannon, www.wealthwise.ie. Wealthwise Financial Ltd T/A Wealthwise Financial Planning is Regulated by the central Bank of Ireland. All details and views contained within this article are for informational purposes only and does not constitute advice. Wealthwise Financial Planning makes no representations as to the accuracy, completeness or suitability of any information and will not be liable for any errors, omissions or any losses arising from its use.