Give and take as Paschal balances the books

The Fine Gael-Independent Minority Government presented the second budget of its term, laying out a series of taxation and expenditure measures reflective of both the recovering economy and the tentative, conditional support of Fianna Fáil through the ‘Confidence and Supply’ arrangement.

An important test for new Taoiseach, Leo Varadkar, and his Finance Minister, Paschal Donohoe, this is the first indication of what we can expect from the Taoiseach’s vision for a ‘Republic of Opportunity’.

A total package of €60.9 billion was announced today, aimed at balancing the needs of an expectant electorate and the European requirements for fiscal responsibility following the Fiscal Stability Treaty of 2012. Broadly expansionary in its measures, there were only a small number of regressive measures announced including tax increases in tobacco products and sugary drinks.

The Government has been keen to stress that its key concern is to balance the books and invest in infrastructure, with a keen mind on the future and Brexit. With a 2:1 ratio of public expenditure to increased taxation, the budget is reflective of the political landscape of contrived consensus, in which it has been created.

The objective of this week’s budget was to give a little to all voters, with various increases delivered to lower and middle-income earners, start-ups, and over 70s – the latter particularly benefiting through pension increases and reductions in prescription charges. Equally, the depth of minor spending measures across the board – from health and welfare, to rural Ireland and Brexit planning – is clearly reflective of a minority Government that has had to pay heed to the diverse asks of both the influential independent TDs and the supporting Fianna Fáil party.

This political instability and unlikelihood of a full five-year term is also reflected in the political emphasis placed on fixing the two major issues of the day – housing and health. Both crises have been given major financial backing in this weeks’ announcements, with a view to quickly turning the tide of public concern before the country returns to the polls.

 

Record Health Spend

A record budget of €15.3bn has been announced, a 5% increase on 2017 – likely owing to a combination of political pressure, a desire to make inroads into waiting lists and the fact that supplementary budgets are no longer feasible. Notable announcements include 1,800 new frontline staff, an additional €55m for the National Treatment Purchase Fund and a commitment for more spending in primary services pending the conclusion of the GP contract.

 

 

 

Housing Package

Described by many Cabinet Ministers as the Government’s top priority for this budget, measures dealing with the housing crisis formed a centrepiece of Donohoe’s budget. With the 10-year capital plan to be unveiled later this year, the budget focused on short term interventions like the Housing Assistance Payment (HAP) extended, while the controversial Help-to-Buy scheme for first time buyers survived, subject to some “minor tweaking”.

 

 

 

Brexit Proofing

In looking to shield Ireland’s economy, in particular its exporters from the potentially harmful effects of Brexit, the Government has announced a number of measures to counter this threat, including a low interest loan scheme with €300m allocated to help the c.100,000 businesses which are threatened by Brexit. In addition, Enterprise Ireland, Bord Bia and the IDA’s overseas offices have been expanded to help affected businesses.

 

 

 

 


Budget 2018 by numbers

12.5% Corporate Tax rate reaffirmed
+€15.3bn record health budget
€1.8bn for housing in 2018
€335m in tax cuts

€60.9bn in total expenditure
4.3% growth forecast for 2017
6.1% unemployment
€1.2bn in new expenditure


 

Key Reactions:

“The Government has taken significant steps today towards insulating the economy from externals shocks today with the announcement of a 17% increase of €790 million in public capital. These measures will also support other housing measures announced today.”

Tom Parlon, Construction Industry Federation

 

“This is largely a positive budget for business, employment and the wider economy. The income tax package is a welcome change of direction towards reducing the burden on average income earners and it will help businesses to attract and retain talent. Ensuring that those on an average income will not be taxed at the marginal rate in future sends out a positive message that work will be rewarded.”

Danny McCoy, CEO Ibec

 

“The health spending outlined in today’s Budget falls very far short of what is needed to cut waiting lists for all public health services and to reduce the many charges for health services which are a barrier to people accessing care when they need it, in line with the Sláintecare plan.”

Roisin Shorthall TD, Social Democrats

 

“This is a budget that tolerates and normalises mass homelessness of young people and children. It is a budget that normalises our crumbling health services. The people deserve better than that.”

Pearse Doherty TD, SInn Féin

 

“This budget and this Government will be judged on how it tackles homelessness and the housing crisis”

Michael McGrath TD

 

Key announcements:

  • GDP Growth forecast at 4.3% for 2017, 3.5% in 2018
  • 19 quarters of employment growth
  • Budget deficit 0.3% of GDP in 2017. Will reach 0.2% in 2018
  • Structural deficit of 0.5%

Brexit

  • Set aside €500m annually as a ‘rainy day fund’ from 2018 to provide as an initial shock absorption
  • Additional resources for IDA Ireland, Enterprise Ireland and Bord Bia Offices
  • Support for Irish exporters impacted by Sterling FX fluctuation
  • Retention of 9% VAT rate for tourism and hospitality sector
  • Competitive €300m loan scheme for Irish SMEs

Global Tax

  • 12.5% Corporation Tax Rate remains unchanged
  • Public consultation on Update on the International Tax Strategy launched.
  • Corporation Tax changes limiting the amount companies can ‘write off’ to 80% of the income arising from intangible assets, down from 100%

Personal Taxation

  • 40% income tax rate will rise from its current level of €33,800 to €34,550 for single person
  • 5% USC rate will drop by 0.25% and 2.5% rate will drop to 2%.
  • Earned income credit will increase by €200 bringing it to €1,150 per year from next year.

Indirect Tax

  • Increase in excise duty on tobacco by 50c per cigarette pack
  • No increase in alcohol or fuel excise
  • Introduction of a sugar tax by April 2018, on the same day a similar levy is being introduced in the UK
  • 0% Benefit in Kind on electric vehicles in 2018
  • Carbon tax review to be undertaken in advance of Budget 2019

Capital Gains / Acquisitions Tax

  • 7-year CGT relief will allow the owners of qualifying assets to sell those assets between the fourth and seventh anniversaries of their acquisition and still enjoy full relief from CGT on any chargeable gains.

Housing

  • €149million for the Housing Assistance Payment and a €116m spend on homelessness, up by €18 million on this year.
  • €500 million for direct building, leading to an expected 3000 new social houses by 2021.
  • Home Building finance established using Nama’s experience.
  • Homeless Services will be increased by €18 million.

Education

  • Over €10 billion in total spend
  • 1,300 additional teaching posts
  • Pupil: Teacher ratio is reduced to 26:1
  • €1.7bn for special education needs
  • 1,000 Special Needs Assistants to be recruited before September 2018

Social Welfare

  • A €5 per week increase in all weekly social welfare payments, including disability allowance, carer’s allowance and both Jobseekers’ Allowance and benefit
  • €5 increase in the State pension

Healthcare

  • €685m in additional funding
  • 1,800 new frontline staff in acute, primary, mental health, and disability services.
  • €55m increase to the National Treatment Purchase Fund
  • Reduction in the threshold for the drugs payment scheme from €144 to €134
  • €40 million additional for primary care services

Transport & Tourism

  • Retention of 9% VAT rate for tourism
  • €2 billion for tourism, transport and sport.
  • €9.6 million in transport funding
  • €111 million in current and capital spending for sport in 2018.

 

What the partites called for: