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IRISH BUDGET 2012

Budget 2012:

Highlights from speech

The Budget at a Glance [pdf]

Other Budget Documents

Tax Tables from KPMG

Tax and economic analyses - - Wed update

SUMMARY OF BUDGET
The detail delivered here from the bottom up:
- Increase in Motor Tax from 1 January
- Reduction in the VAT rate on district heating from 21% to 13.5%, which will benefit businesses.
- Farmers will be able to claim a VAT refund on wind turbines purchased from 1 January 2012.
- Broadening the base for PRSI through removal of the remaining 50% employer PRSI relief on employee pensions.
- Broadening PRSI base to cover rental, investment and other forms of income from 2013.
- Increasing the rate of notional distribution on the highest value Approved Retirement Funds and similar products to 6%.
- Increase the rate of tax on the transfer of an ARF retirement fund on death to a child over 21 from 20% to 30%.
- Abolishing the "citizenship" condition for payment of the Domicile Levy so as to ensure that "tax exiles" cannot avoid it by renouncing their citizenship.
- Intends to keep the contentious issue of the tax treatment of tax exiles under constant review.
- Increasing the current rate of Capital Acquisitions Tax from 25% to 30% after today.
- Increasing Capital Gains Tax from 25% to 30% after today.
- "I am not going to apply the Carbon Tax to solid fuels, so there will be no increases for peat or coal"
- Household charge of €100 can be paid in instalments.
- Increase in carbon tax will be applied to petrol and auto-diesel from midnight tonight (1½ cent per litre)
- Reducing the Group A Tax-free threshold for Capital Acquisitions Tax from €332,084 to €250,000.
- Increasing DIRT from 27% to 30%.
- VAT to be increased by 2%. Government commits to not raise the standard rate of VAT beyond 23% during its lifetime.
- Noonan said 300,000 people will move from liability to pay Universal Social Charge
- Universal Social Charge: From 1 January, exemption level will be raised from €4,004 to €10,036. Revenue will collect USC on a cumulative basis next year.
- The top 5% of earners pay 44% of income tax according to Revenue records
- Additional new tax measures of €1billion announced
- The Programme for Government states that there will be no increase in income tax. This is the key issue for this Budget.
- General government deficit will be 10.1% of GDP this year and 8.2% next year - both below targets in troika bailout
- Noonan to establish a Nama advisory group which will advise him on Nama strategy and make appointments to its board
- Legacy property reliefs being reduced and a report on it will be published with Finance Bill
- "A property relief surcharge of 5% will be imposed on investors with an annual gross income over €100,000"
- Increased mortgage interest relief for first time buyers buy from tonight up to a year but nothing if wait until 2013
- 'Non-first time buyers in 2012 will benefit from mortgage relief at 15% instead 10% proposed by the last Government'
- Nama is publishing policy guidance on how it deals with tenants who are suffering from upward only rent reviews
- The plan to introduce legislation to end upward only rent reviews scrapped
- Mortgage interest rate relief increased to 30 per cent
- No changes on residential stamp duty
- Capital Gains Tax incentive also announced; modifying retirement relief from Capital Gains Tax so it better incentivises the timely transfers of farms and businesses before the current owners reach the age of 66.
- 50% stock relief for all registered farm partnerships and 100% stock relief for certain young trained farmers forming such partnerships.
- Stamp Duty on commercial property including farmland is to be cut by 6% to 2% from midnight
- 9 per cent rate of VAT for tourism being extended to open farms
- The first €100,000 of R&D expenditure of all companies will be allowed on a volume basis for the purpose of the R&D Tax Credit.
- The corporate tax exemption for new start-up companies is being extended for the next three years and will be available for companies that commence trading in 2012, 2013 and 2014
- He said a Special Assignee Relief Programme to allow companies hire executives from overseas will be reduced
- The Minster announced foreign earnings deduction for people who spend time developing markets in the BRICS countries
- Noonan says no change to Corporation Tax Rate
- He said "We have restored political stability and restored Ireland's reputation abroad'
- The Minister began his speech by saying on this day 90 years ago, the Treaty was signed which restored Ireland's sovereignty.

Monday Dec 05

Details of expenditure cuts presented to the Dáil Monday afternoon, Dec 05

Statement on Expenditure -- Brendan Howlin TD, Minister of Public Expenditure and Reform

The total Irish budget deficit (both current and capital spending and receipts) is expected to exceed €18bn in 2011 and the target shortfall is €17bn in 2012.

Following a consolidation package of tax rises and spending cuts of €3.6bn in 2012, a General Government Balance of –8.6% of GDP (gross domestic product) is in prospect compared with 10% this year. The budget target is 2.8% in 2015.

The ratio of General Government Debt to GDP is forecast to be 111% at the end of this year. The debt ratio is projected to peak at 118% at end-2013, declining to about 111% by the end of the current forecast horizon.

Last April, the Government published its Ireland - Stability Programme Update (SPU) for the EU-ECB-IMF bailout troika and GDP growth is forecast at 0.8% in 2011 and 2.5% in 2012. However, the OECD (Organisation for Economic Cooperation and Development - - a think-tank for 34 mainly developed countries) said in its recent survey that it expects GDP (gross domestic product) to expand 1.2% in 2011 and a slowing in growth next year, to 1%.

In Sept, IMF staff lowered projections for growth in demand for Irish exports, especially in 2012, although the impact on activity will be cushioned by the high import-content of Irish exports. In the the October World Economic Outlook, staff lowered the projected Irish growth rate to 0.4%in 2011 and to about 1.5% percent in 2012.

Also in Sept, the Economic and Social Research Institute (ESRI) in its latest economic outlook, lowered its growth forecasts for the economy while saying that even though "the overall budget targets for 2012 are more or less predetermined...we think that it might be prudent to overachieve slightly as a precautionary measure."

In its Quarterly Economic Commentary, Summer 2011, the institute called for a budget adjustment in 2012 of up to €4bn compared with the €3.6bn mix of spending cuts and new taxes in the National Recovery 2010-2014 fiscal plan.

It said GNP (GDP) is forecast to increase by 0.2 (1.8)% this year and by 0.7 (2.3)% in 2012. Unemployment is forecast at 14.3% this year and 14.5% in 2012, with the moderation in the rate of increase reflecting net outward migration.

The OECD recommended Irish structural reforms to tackle high and persistent unemployment. Its said jobless benefits should be cut the longer a person is out of work and receipt of jobless benefits should be dependent on the acceptance of a training offer.

The OECD said the Government should cut the budget deficit faster than required under the terms of the EU-IMF bailout package if economic growth permits and it favours spending cuts over tax increases. The survey said a recent proposal by NAMA to stimulate the residential property market risks exposing the taxpayer to losses. Any such programme by the State's toxic property loans' agency should be “transparent and of a small size.”

To meet fiscal consolidation targets, the report recommends spending restraint be focused on public sector efficiency, welfare reform and infrastructure projects. It also suggests broadening the tax base, through a reduction in tax expenditures and introduction of property taxes.

“Provided the economy continues to grow, Ireland should consider reducing the budget deficit faster than required by the programme, to help gain credibility in financial markets,” said Robert Ford, deputy director of the OECD country studies division.

The OECD expects GDP (gross domestic product) to expand 1.2% in 2011 and a slowing in growth next year, to 1%.

The OECD said unemployment rate rose from 4.6% in 2007 to 14.2% in the second quarter of 2011. In addition, labour-market participation has declined significantly, particularly among youth, and there has been a sharp increase in emigration. These developments reflect the large employment losses that occurred during the Irish recession, a pattern typical of countries having been affected by the burst of a property bubble, such as Estonia, Spain and the United States. Long-term unemployment has risen significantly and, as discussed below, there are weaknesses in Ireland’s activation policies. In this environment, there is a risk of structural unemployment remaining high, as the skills of job seekers are not matched by the job offers and human capital erodes.

Source: OECD

Meanwhile, the new Irish Fiscal Council said:

The Government faces an unenviable balancing act in deciding the appropriate fiscal stance for 2012–2015: the domestic economy remains weak, while the debt and funding situation for Ireland will remain fragile for some time to come.
Weighing up the different elements involved, retaining the current SPU targets as a percentage of GDP is viewed as within the range of appropriate courses of action.
Relaxing the budgetary targets agreed in the programme with EU/IMF is not a viable option, given the need to safeguard hard won gains and the creditworthiness constraints imposed by both the market and official creditors.
The Council’s main conclusion is that there is a strong case for a strengthening of the fiscal consolidation effort beyond that targeted in the SPU. The Council believes that a General Government deficit target of the order of 1% of GDP for 2015 would be appropriate. The Government’s current target in the SPU is a deficit of 2.8%.

In late October, the ESRI reaffirmed its belief that Ireland’s public debt crisis will be less severe than previously expected.

Addressing the joint Oireachtas committee on finance, public expenditure and reform, Prof John FitzGerald, said that Ireland’s primary balance (before interest payment on the national debt) will move into surplus in 2014.

“Everything that has happened in the last nine months has suggested that things are performing slightly better than we thought, not worse”, although he noted the continuing uncertainty in Europe. “The biggest risks are now outside Ireland.”

He said the banks had moved from being a liability to an asset on Ireland’s balance sheet and the Government would sell them in time to get a return for the exchequer.

“The banks are now our biggest assets,” he said. “Getting our money back from the banks is key to debt sustainability in the long term.”

On household indebtedness, FitzGerald said that while about 20% of households were badly impacted, 80% were in a better position. In particular, he referred to a cohort of individuals in the 30 to 35 age bracket with “large financial assets and no houses”.

“At some point they will go out and spend, though we don’t know the timing of this,” he said.

Davy report on Ireland's Medium Term Fiscal Statement (pdf)

He also said there had been a strong performance in the manufacturing sector and an increase in exports from small to medium-sized businesses.

“A cut in expenditure in Ireland has less of an impact than it does in larger economies. While people spend less, a lot of what they spend less on is imports.”

FitzGerald was asked whether there should be a greater emphasis on stimulus rather than austerity in the focus economic policy. He said using State money to invest in the economy “is a very expensive way to create jobs”.

He also warned of the danger of destabilising the economy and leading the country into greater austerity. “Austerity over a much longer period is a bad idea,” he said.

FitzGerald said the current climate meant there was more pressure to get a higher rate of return from any State investment, something that will be more difficult as interest rates rise.

Professor John McHale on Ireland's Fiscal Advisory Council

	Irish Budget 2012: Interest on national debt to rise to €7.5bn - - almost 20% of tax revenues
	Irish unemployment rate rises to 14.5% in November; 179,890 people on the Live Register for more than a year
	Irish Economy 2012: ESRI says Eurozone crisis likely to trigger recession and hit Ireland's growth prospects
	Irish Budget 2012: Capital budget cut by €755m; 70,000 additional school places needed in coming years
	Irish Medium-Term Fiscal Statement: Fiscal adjustment of €12.4bn required over period 2012-2015; Unemployment to remain high
	Budget Perspectives Conference to focus on fiscal challenges
	Ireland Stability Programme update
	OECD Economic Survey of Ireland: OECD recommends structural reforms to tackle high and persistent unemployment
	ESRI lowers growth forecasts; Prudent to 'overachieve' on 2012 budget targets
	New Irish Fiscal Council says General Government deficit target should be cut to 1% of GDP for 2015
	IMF cuts forecast for 2011 economic growth to 0.4%
	Irish Economy: Deleveraging by banks and economic recovery in Ireland