Irish Budget 2015: The budget will be announced on October 14 next (expect it to be mainly officially leaked by the evening of Oct 13) and Ibec, Ireland's principal business lobby, begins the annual submissions routine today with calls for personal and business tax breaks and no general wage hikes.
Ibec says the latest growth figures mean a net adjustment of €200m will be enough on budget day, far below the planned €2bn. This would reduce the budget deficit to 2.7% next year, comfortably under the 3% limit.
In its Budget 2015 submission, published today, the group calls for €300m worth of income tax reductions, a €100m reduction in consumer taxes and the abolition of the pensions levy. It said the budget must focus on reducing tax rates and boosting investment across the economy.
- Increase the entry point to the marginal tax rate from €32,800 to €34,800;
- Reduce the marginal tax rate from 52% to 51%;
- Reform the universal social charge so self-employed and PAYE workers are treated the same;
- Reverse recent alcohol excise increases;
- Continue the reduced 9% VAT rate for the hospitality sector;
- Drop the unfair pensions levy, as had been promised;
- Provide a compensatory scheme for large energy users to be to be triggered when Irish electricity costs exceed the EU average;
- "We need the right tax environment if we are to increase investment in enterprises and infrastructure. The capital gains tax regime needs to be overhauled to encourage companies to reinvest their money in new projects;"
- Provide special income tax arrangements for categories of expatriate workers hired by multinationals and some indigenous firms: relief should provide an exemption from all tax on work and should therefore include both the USC and PRSI;
- "Ireland has become less attractive to mobile investment in recent years...we also need to improve Ireland's intellectual property tax regime and provide greater certainty around the R&D tax credit scheme."
The final point is a mantra supported by no evidence - how lower should the lowest corporate and employer social security costs in Western Europe go?
Ibec says: "The entry point to the marginal rate is the lowest in the OECD and the marginal rate (52% for employees) is one of the highest compared to countries with which we typically compete with for investment. In addition to the high personal tax burden for skilled staff, changes to tax rules on share benefits in recent years have further damaged the competitiveness of Ireland’s personal tax regime. Many companies are also finding it difficult to retain talent and the high personal tax burden is increasingly cited as a reason for staff to move overseas.
Multinational companies which are seeking to attract expat workers for a project or placement typically operate tax equalisation models. This has the effect of delivering an agreed net salary to the employee and an adjustment in the gross salary to reflect this. The overall impact of Irish income tax increases in recent years has therefore been to increase the total labour cost for multinational businesses locating positions in Ireland. This means that Ireland is becoming a less attractive location for investment and many direct and ancillary jobs are being lost to competitor jurisdictions with lower personal income tax burdens. This is costing jobs and damaging the Exchequer returns."
Expanding special income tax deals for some categories of workers would provide great opportunities for abuse -- See Page 21.
On wage pressures the lobby group says: "Following a number of years of limited salary increases, wage pressures are now escalating. Improved labour market conditions are playing a role but the most significant driver for wage increases is the erosion of take-home pay in recent years. There is currently no cost of living justification for wage increases – the overall cost of living remains below where it was in mid-2008 – but employee spending power has been reduced substantially. Therefore, employers are facing growing wage demands at a time when they are unable to pass on these higher costs to their consumers."
Danny McCoy, Ibec CEO, said: "We have a chance to give consumers a break, put money back into peoples' pockets and kick start personal, commercial and public investment. If we get it right, we can look forward to strong growth in the months and years ahead. This will result in thousands of new jobs."
There are some companies of course that can afford general pay rises and while tax and levy anomalies should be corrected as merited, it's time to end the routine of begging for tax breaks with no price tag.
Contrast McCoy's approach with John Cridland, director general of the CBI (Confederation of British Industry) in his New Year's message last December.
“Businesses must support employees in every part of the country to move up the career ladder, while also giving a helping hand to young people taking their first tentative steps into the world of work," he said. "As the financial situation of many firms begins to turn a corner, one of the biggest challenges facing businesses is to deliver growth that will mean better pay and more opportunities for all their employees after a prolonged squeeze."
John Cridland said too many people are "stuck" in minimum wage jobs, despite an upturn in the UK economy. He said most firms would expand their workforce in 2014 for the first time since the recession began.
But many people could not see progression in their jobs, he said.
Cridland added: "The good news is that wages will pick up in the year ahead, as growth beds down and productivity improves."
Ibec said the Irish economy is set for sustained long-term growth but beyond the short-term, there can be no reliability on such forecasting.
John Kenneth Galbraith, the famous economist, once said: "The only function of economic forecasting is to make astrology look respectable."
To coincide with Ibec's CEO Conference in November 2011 it and PwC, the Big 4 accounting firm, published a report which indicated that employment levels would be back at pre-crisis levels by 2016, as exports continue to grow and domestic firms start exporting new services and products. In the same week, Ernst & Young, another Big 4 firm, said the jobs level would not be back to 2007 levels until 2030.
