What businesses can expect from the government's billion-euro Budget giveaway

BUSINESS LEADERS HAVE been elbowing each other the past few weeks for a piece of the billion-euro fiscal breathing space earmarked for Budget 2017.

Ministers Michael Noonan and Paschal Donohoe have set aside a third of that amount for tax cuts, with the rest expected to go on spending increases.

The minority government faces the tricky challenge of weaving its proposals through the Dáil with as little drama as possible despite the differing agendas of both the independents and Fianna Fáil.

Paschal Donohoe and Michael Noonan

For that reason, political pundits anticipate a load of calculated decisions with a strong focus on the housing crisis and other social issues like university fees.

On the business side, “Brexit-proof” incentives will be rolled out to encourage entrepreneurship and to keep Ireland attractive for foreign direct investment.

Here are some of the key talking points in business circles ahead of Noonan and Donohoe’s announcement on 11 October:

Capital gains tax

Entrepreneurs are hoping to see a reduction in the capital gains tax, which is chargeable on the sale of assets such as all or part of a business.

The Programme for Government promised to match the UK’s rate by reducing the current charge from 33% to 10% and raising the cap on qualifying gains from €1 million to €10 million.

The Small Firms Association said that the current rate puts Ireland at a competitive disadvantage when it came to businesses attracting funding, while the Irish Stock Exchange said a reduction would bring Ireland in line with international norms.

Dublin’s commissioner for startups Niamh Bushnell echoed those claims in her pre-Budget submission.

Pundits expect the government will follow through with this proposal as it falls in line with its “Brexit-proof” policy of discouraging young businesses from migrating to gain the advantage of Britain’s more attractive scheme.

Excise duty

Unsurprisingly, the alcohol lobby has been vocal in its call for the government to cut the excise duty tax on their products.

Jonathan McDade, head of the the Irish Brewers Association (IBA), previously told Fora that the measure has been a “hindrance in terms of growth, innovation and investment” for brewers in Ireland.

Beer makers want a cut in excise duty

He claimed that a reduction would lead to job creation in the brewing sector.

Wine makers were also critical of the tax, which has remained at €3.19 per €9 bottle of wine since 2014.

Michael Foley, chairman of the Irish Wine Association (IWA), echoed McDade’s claims that a lower rate would create employment.

The IWA also claimed that excises were damaging Ireland’s tourism industry because the price of alcohol was one of the reasons why tourists said they wouldn’t return to the country.

However despite cries from the industry, the government is highly unlikely to reduce the booze tax in this year’s Budget. The best businesses in this sector can hope for is that the rate doesn’t go up this time around.

Diesel

It’s pretty much a given that, like the cost of cigarettes, excises on diesel will be jacked up in the budget, with prices in the Republic currently below the average rates for Northern Ireland.

The Irish Road Haulage Association, which represents lorry drivers, argued that end consumers would be hit as the cost of transporting goods would increase – trucks only run on diesel fuel.

Diesel is expected to be hit

Speaking to Fora after the launch of a same-day delivery service, John Tuohy, chief executive of Nightline delivery company, which runs its own fleet of vans, said that he would be “keeping an eye to make sure that excise duty on diesel doesn’t increase too much”.

However, similar to other consumption taxes, the best firms with commercial vehicles can realistically hope for is no change on 11 October.

Tourism VAT rate

Ireland’s booming tourism trade – which saw the number of inbound trips to the country increase almost 11% between June and August – is keen to maintain its preferential 9% VAT rate.

Introduced in 2011 as a measure to boost activity in the hospitality sector, the lower rate was due to be phased out at the end of 2013 but has since been ‘extended indefinitely’.

The programme for government stated that the rate would be retained “as long as prices remain competitive”.

Critics have argued that this is no longer the case, especially in Dublin, where prices continue to increase as occupancy levels remain sky-high.

The Irish Tourist Industry Confederation said retention of the VAT rate is “vital to the regional spread of tourism”, with its chairman Paul Gallagher calling on the government to “continue pro-tourism policies”.

These arguments have been backed by the Restaurants Association of Ireland (RAI), whose members also benefit from the tax break.

RAI argued in its pre-budget submission that the food industry is experiencing an unequal recovery, “where a divide remains evident between business in the capital, urban areas and rural Ireland”.

9% VAT rate is tipped to stay

The finance minister’s own department has argued that a return to the 13.5% rate is due, stressing that the temporary initiative has “done its job”.

“The general recovery of the economy and increasing prices in the sector raises questions about (the VAT rate’s) future,” a briefing note to the minister said.

Noonan himself has already acknowledged that the case for retaining the 9% rate for the capital’s hotel sector is diminishing each year, though he added “retention of the measure for the rest of the country remains” as many regional hoteliers have yet to return to a profit.

Meanwhile, the Irish Congress of Trade Unions has claimed that the special rate does little to help the sector’s low-paid workers while costing the taxpayer €620 million every year.

The government is under enormous pressure from lobbyists in the hospitality sector to maintain the current rate, even though the industry is thriving.

It would be a controversial move to reverse to the higher rate, so odds are that Noonan will choose to keep the peace for another year and ignore his own officials.

Self-employed

The self-employed are hoping to have their tax bills brought in line with PAYE workers through increased tax breaks and access to PRSI benefits.

At present, the entry point to PRSI for the self-employed is €5,000 each year, compared to €18,000 for employees, resulting in a higher tax rate for both low- and high-earning self-employed people.

Right now, the self-employed pay 4% PRSI on their income, but can’t claim jobseeker’s benefit or sick pay, although they are entitled to jobseeker’s allowance as well as materity benefit and a state pension.

In its pre-budget submission, the Small Firms Association recommended that social protection benefits should be extended to the self-employed.

ISME, the body that represents small businesses in Ireland, called for a “total end to tax discrimination against the self-employed”.

Former chief executive of ISME, Mark Fielding, who stepped down on Friday, said: “Ireland needs to grow its own entrepreneurs. We need to use our tax system more effectively to draw on the increasingly large pool of Irish-born managers, skilled professionals, and entrepreneurs working both at home and overseas.”

Former ISME CEO Mark Fielding

At the announcement of the last budget, Noonan promised to “end the unfair treatment of the self-employed” and said that as resources became available, the government would “complete tax equalisation” for those that fall into this bracket.

From the start of this year, the self-employed were given a €550 tax credit – still €1,100 less than the amount PAYE workers could claim against any income.

It is thought that this tax credit will be increased in Budget 2017 as the government makes a move to bring tax breaks for the self-employed closer in line with those available to regular employees, although full equalisation isn’t likely to come this time around.