Budget 2021 at a glance: Borrowing to save
Donohoe and Minster McGrath have delivered the biggest spending budget in the
history of the State. Describing the Budget as Ireland’s bridge to a better
future, Minister Donohoe said Ireland will come through the invisible enemy of
COVID-19 and the havoc the virus has wreaked on the nation’s wellbeing.
Measures announced in today’s Budget extend wage supports, reduce the VAT rate from 13.5 percent to 9 percent for the tourism and hospitality sector, give regular compensation payments to businesses restricted by COVID-19 safety measures and extend the debt warehousing scheme to help the self-employed manage their tax debt, giving Irish businesses something tangible to rely on and build upon.
The spending of Budget 2021 will bring business certainty in a time of turmoil brought on by COVID-19 restrictions and an unknown post-Brexit trading landscape. But the key to the success of these supports will be ensuring that recipients do not become entangled and impeded by red tape and excessive bureaucracy. If the bar to entry is too high in terms of time or expertise required, we run the risk of businesses being unable to avail of much needed supports. We saw evidence of this in the operation of the TWSS and we must avoid going down the same route; it’s the last thing that businesses on the brink need.
The promise that wage supports will not end come 31 March 2021 will bring a margin of security for businesses as will a new COVID Restrictions Support Scheme for businesses which have either been prohibited in operating or only been able to trade at significantly reduced levels due to COVID-19 restrictions. The extension of the tax debt warehousing scheme to allow self-employed taxpayers to defer payment for a period of a year with no interest applying is good news and it appears that employers who cannot pay the TWSS they owe back to Revenue can also access the debt warehousing scheme.
|Employment supports to continue throughout 2021|
Another wage subsidy scheme will take over from the Employment Wage Subsidy Scheme (EWSS) when it expires on 31 March 2021. The Ministerdetailed that there will be no cliff edge end to the EWSS. Further announcements on the form of the next wage subsidy scheme will be made when the economic conditions are clearer.
|COVID Restrictions Support Scheme|
A compensation scheme called the COVID Restrictions Support Scheme (CRSS) will provide support for businesses whose trade has been significantly impacted or temporarily closed as a result of public health restrictions. The scheme will be available when Level 3 or higher restrictions are in place. Given the current restrictions, the scheme is effective from today until 31 March 2021. Payments will be based on the business’s 2019 average weekly turnover, subject to a maximum weekly payment of €5,000 and will be administered by Revenue.
|Tax debt warehousing scheme|
The tax debt warehousing scheme will be extended to include TWSS repayments owed by employers. The tax debt warehousing scheme will also be extended to include the balance of tax due for 2019 and preliminary tax due for 2020 for self-employed individuals in financial difficulty.
|Reduced VAT rate for the hospitality sector |
From 1 November 2020 to 31 December 2021, the tourism and hospitality sector will benefit from a temporary cut in the rate of VAT from 13.5 percent to 9 percent. The estimated cost of this measure is €401 million for the time period of the reduction (€336 million for calendar year 2021). According to the Minister’s speech, this will allow those businesses that are currently open in this sector to benefit.
Modest Income Tax and USC improvements
The Programme for Government stated that there would be no change to income tax credits or bands in Budget 2021. However, the Minister made some modest adjustments in favour of the income taxpayer. The ceiling of the 2 percent USC rate band will increase from €20,484 to €20,687 – a move which will ensure that a fulltime worker will remain outside the 4.5 percent USC rate when the hourly minimum wage rate increases from €10.10 to €10.20 in January 2021. An increase in the Earned Income Credit from €1,500 to €1,650 now equalises the self-employed tax credits with PAYE workers but the 3 percent USC surcharge remains a burden on the self-employed. From 1 January 2021 the weekly income threshold for the Employer PRSI higher rate of 11.05 percent will increase from €394 to €398. The Dependent Relative Credit increased from €70 to €245.
State pension age to remain at 66 for now
The state pension age will not increase from 66 years to 67 years in January 2021. This is in line with the Programme for Government. During his speech today, Minister Michael McGrath said that a Pensions Commission would be established to consider the issue; however, no details or commitment on a timeframe were given.
Little by way of additional supports for those working from home was provided for in today’s Budget. Minister Donohoe did clarify that the cost of broadband may now be included in a worker’s claim for a tax deduction, where their employer does not contribute towards these costs. An Inter-Departmental Group is working on a strategy for remote working and remote service delivery, as committed to in the Programme for Government.
|Corporate Tax |
Again, this year the Minister reaffirmed Ireland’s commitment to retaining the 12.5 percent corporation tax rate. The measures announced today are aimed at the digital, innovative and film industries – perhaps cleverly investing in future growth sectors to support the rebound of the economy. Highlights announced include the creation of a digital gaming tax credit, a change to the Intangible Asset regime along with extensions to several reliefs which were due to expire. Furthermore, the Minister will publish an update on Ireland’s Corporation Tax Roadmap and its response to the OECD’s latest international tax proposals.
|A taxing drive: carbon taxes increase|
In a drive to decarbonise Ireland’s economy, the rate of carbon tax on auto fuels will increase by €7.50 from €26 to €33.50 per tonne/CO2 from midnight. Budget 2021 will also include the largest ever budget for energy efficiency and retrofitting programmes, helping Ireland meet its international climate action commitments.
|VRT, Motor Tax and fuel and tobacco excise|
The changes in vehicle registration tax (“VRT”) and motor tax and fuel are part of the Government’s Climate Action commitments and each aims to incentivise motorists to move away from higher polluting vehicles.
Budgeting for a disorderly Brexit
An expectation of a no-deal Brexit is the backdrop against which Budget 2021 is set, with a range of supports announced to help the most vulnerable sectors of the economy to prepare for a “hard” Brexit.
An extension of the Help to Buy scheme for first time buyers and an extension to the Stamp Duty Refund scheme are the only tax related housingmeasures announced.
|Capital Taxes |
The only changes to capital taxes are an amendment to the Capital Gains Tax (CGT) Revised Entrepreneurial Relief and a technical change to address an avoidance issue when an original creditor disposes of a debt.
| Securing the agri-sector |
Budget 2021 remains largely unchanged for the farming community, as existing schemes and taxation measures remain. However, the Minister for Finance announced the extension of two major stamp duty relief initiatives for farmers.
Budget 2021 provides little by way of immediate investment incentives or supports. An assessment of the EIIS will be conducted in the context of COVID-19. The Department of Finance is coordinating a group to provide proposals to leverage European capital and establish an equity fund with a mandate to invest in domestic, high innovative enterprises.
Commercial rates waiver to be extended
The commercial rates waiver will continue up to December 2020. The waiver of commercial rates was originally introduced for a three-month period from 26 March 2020 and was then extended under the July Stimulus Package for six months to the end of September.