Budget 2022: A fine balancing act
By Ronan Furlong, Tax Partner, PwC Entrepreneurial & Private Business Practice
As we emerge from the grip of COVID-19, many challenges remain including housing, climate change, supply chain disruption, Brexit, global tax reform as well as our mounting national debt. But there are limited resources available (circa €1.5 bn of spending/taxation measures) so this will need to be carefully targeted to achieve the best outcome for the indigenous economy. Budget 2022 will be a fine balancing act.
Irish private businesses employ 45% of people working in Ireland. Budget 2022 should be targeted to maintain employment and support future growth in this important sector. For private businesses, there are four strategic priority areas we would like to see targeted for support: employment maintenance and business restoration; growth and investment; business succession and building a sustainable Ireland.
Specific measures which we hope are high on the Minister’s list include: extending the Tax Debt Warehousing Scheme and introducing the tapering of Business Rates until the end of 2022 as now is not the time to call in debt. In addition, our hospitality sector is only now emerging from a crisis period and priority needs to be given to supporting them by extending the 9% VAT rate for the hospitality sector to 31 December 2023.
We also believe that a measure to encourage capital spending in the economy merits careful consideration and we are suggesting a ‘super deduction’ for capital expenditure on plant and machinery and expenditure on buildings/factories that receive a recognised accreditation for overall energy performance. We also would like to see a temporary reduction in the rate of Capital Gains Tax and Capital Acquisitions Tax to stimulate economic activity.
On personal tax there we do not expect significant measures. Reduction in personal tax rates are unlikely but there may be a slight movement on tax bands and credits (but only to make up for inflation). On PRSI, the government will be very mindful of getting people back to work. If there are any movements, we would be hopeful that these are delayed until 2023 when the economy and jobs have recovered.
Ireland is prioritising its transition to carbon neutrality. Businesses need to embrace climate action and the challenges and opportunities this will bring. We need to grow our energy supply in a greener way - including through green hydrogen and wind energy. We believe that tax policy can play a critical role in Ireland’s decarbonisation journey and influencing behaviour. For example, R&D tax credits to promote sustainable and green tech investments, incentivising green actions such as more electric vehicles and retrofitting homes as well as promoting Ireland as a ‘green’ finance hub. Suggestions of raising VRT/BIK on electric vehicles seem out of step with these priorities and premature.
Remote working is fast becoming the new work model and, with less travel, is also one of the great ways to promote a greener society. The Minister could introduce a flat rate tax credit instead of the current situation where bills need to be submitted and would be less complicated or he could increase the PAYE/earned income tax credit. As a large proportion of people are remote working already, further incentives may not actually be needed, but they would help offset increasing energy costs.
Many companies are experiencing staff shortages. More support is needed on upskilling and training to ensure Ireland continues to have the digital skills for the future. We need to make sure that Ireland continues to attract talent and that our personal tax system is not a barrier. We have a high personal tax burden by international standards and we would like to see the Minister committing not to increase the personal tax burden and to reduce it over time.
On pensions we have a huge shift in our demographics coming down the track. Currently, there are around 4 people of working age supporting every person aged 65 and over. This number is expected to fall to just over 2 by 2050. The main focus for the government should be to encourage greater pension participation. It will be key not to reduce pension tax reliefs and not to do anything drastic now as we plan for auto enrolment in 2023.
On corporate tax, there has been huge focus on the global minimum tax rate and the OECD proposals, which will fundamentally change how multinationals are taxed. The best solution at this stage from an Irish perspective would be that the global minimum tax rate lands at 15% for large multinationals. Crucially, for Irish owned businesses with turnover less than €750m, we would be hopeful that the 12.5% corporate tax rate stays.
So although the minister has limited resources available, we feel that these can be carefully targeted to support the sectors that need most help as the economy emerges from the Covid pandemic.