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Irish Budget 2016: Ibec demands 20 tax cuts, spending and investment rises
By Michael Hennigan, editor of Finfacts
Jul 27, 2015 - 8:04 AM
Irish Budget 2016: Ibec, the principal Irish business lobby, in a submission to the Department of Finance in respect of next October's budget, today outlines demands for a mix of 20 tax cuts, spending and investment rises that it wishes to see implemented. The changes including provisions for a rises in public sector pay and for demographic changes, are estimated to cost €2.5bn.
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There are demands for cuts in income, alcohol and capital gains taxes plus a rise in public investment by €1bn.
Ibec says Ireland needs to continuously review its business tax offering in order to ensure that it remains competitive with other jurisdictions seeking to attract a similar profile of FDI companies. "Ibec believes that the competiveness of the business tax regime must be underpinned by:
- the 12.5% corporate tax rate;
- a world-class R&D tax credit scheme;
- a competitive personal tax regime for high skilled and mobile workers;
- best in class knowledge development box (KDB).
Ibec wants "a ‘credit lite’ R&D tax credit model for SMEs" and it says "Ireland is also out of line with many of its competitors by not having a significantly more attractive R&D tax credit regime for SMEs."
The current 25% R&D tax scheme has been operational since 2004 and has had no discernible impact on innovation activity in the economy.
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Ireland: Innovation with or without R&D/ scientific breakthroughs — Government data show that 300 firms accounted for almost 70% of total R&D expenditure in 2012. 13% of foreign-owned firms (107 firms), each spending over €2m, accounted for 88% of R&D spending in the foreign-owned sector in 2012 (which accounts for over 70% of total business R&D). A large proportion of foreign-owned firms (54%) in Ireland are not R&D active.
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The following are the main demands of Ibec:
- Reduce the marginal rate of tax by 1% in 2016 and commit to one below 50% by 2017
- Increase the entry point to the marginal rate of income tax by €1,500 in 2016 for a single person with a corresponding increase for married couples and other tax cases. Increase personal credits by €100 for all income earners
- End the new third higher rate of tax above €70,000 which is causing problems in attracting high skilled staff
- Alcohol: Irish excise taxes are amongst the highest in the developed world and are driving inordinately high price levels. The most recent increases should therefore be reversed over the coming years - Do not introduce discriminatory taxes on food or drink
- Maintain the 9% VAT rate for tourism and hospitality
- The USC surcharge is an anachronism given the direction of enterprise policy elsewhere and should be removed over time. In Budget 2016 the Government should reduce the USC surcharge on proprietary directors from 3% to 2%
- Capital Gains Tax changes (CGT) in recent years have made Ireland relatively unattractive place to scale a high potential business. This has led to many smaller Irish companies rebasing to the UK. An entrepreneur’s CGT rate of 10% should be introduced with limits set in order to reduce its Exchequer cost.
- An introductory version of the Seed Enterprise Investment Scheme (SEIS) scheme similar to its UK equivalent would remove a barrier to small start-up business whilst also getting first time investors into the market. For example a 50% income tax credit on investments in new or micro-firms on similar terms to the UK scheme
- The administrative costs associated with the R&D tax credit are too burdensome for smaller firms to participate with the credit. A pro-forma R&D tax credit should be introduced to help smaller firms overcome these costs and engage with the credit.
- Administrative changes to the R&D tax credit: Lack of certainty in relation to the scheme remains the single biggest weakness from a business perspective this can be easily rectified in Budget 2016; The legislation should be changed to allow companies to claim the R&D tax credit at 37.5% ‘above the line’ while forgoing the associated corporate tax deduction at 12.5%
- Introduce a target of 2.5 % of GDP for spending on Science Technology and Innovation in order to boost productivity.
- Introduce a student fees scheme in the medium term and reverse damaging cuts to the exchequer contribution to higher education; The current position in higher education funding is unsustainable and is close to breaking point. A new approach is needed in the upcoming report by Expert Group on Future Funding for Higher Education
- Fund upskilling: Lifelong learning programmes with defined learning outcomes should be reprioritised and adequately resourced in the forthcoming National Skills Strategy; Cuts to the Skillnets budget should be reversed
- Establish a ring-fenced fund to support the development of new apprenticeships
- Funding teacher training: The recent agreement on junior cycle curriculum reform should be supported through a comprehensive continuing professional development programme for teachers.
- Reform Child Benefit so that it is no longer a universal payment and redirect consequent savings towards a new national childcare scheme
- Introduce targeted measures for student accommodation and active retirement housing Reclassifying these accommodation types under planning regulations and reducing the VAT rate applied to them to 9% would take pressure off urban rents and housing shortages in a targeted and cost effective manner
- Encourage landlords to refurbish existing stock: Extending the lifespan on the Home renovation incentive scheme would encourage landlords to upgrade and maintain existing stock whilst bringing derelict stock onto the market.
Last week Danny McCoy, CEO of Ibec, said the Government should cut the employer social security tax rate (PRSI) if it agrees to a 50 cent hike in the minimum wage:
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