What's coming up in Budget 2017 in regards to tax?
In this episode of Taxback.com's Budget 2017 podcast, we discuss what's predicted to happen in relation to tax changes and amendments.
Hello and welcome to Taxback.com's Budget 2017 podcast. Today we're asking our tax experts Barry Flanagan and Christine Keily what tax changes may be upcoming in this year's budget.
Ciara: So, will they finally scrap USC and if they do scrap it, how will they make up for the shortfall?
Christine: Well USC is certainly a hot topic coming up to this budget, personal taxes now account for 40% of total tax yield and USC accounted for 9% of total tax receipts in 2015. We do expect USC changes but a complete abolishment in 2017 is not really likely. Probably we will see some kind of a reduction in rates and maybe some changes in the reduction in the bands and entry level. So we'll be expecting a focus also on providing benefit to the low and middle earners.
Barry: Yeh I think to manage expectations, there is no chance of them scrapping the USC and in recent weeks the soundbites that are coming from Leinster House is actually there isn't that much scope for tinkering at all. I think really what we can expect this time round, cutting 1% off the USC would cost approx. €500 million so that would really be the only change they could make if they're to keep within the constraints they've set themselves.
So I think that you might be looking at a half a percent coming off-possibly a half percent coming off the 5.5% rate so that would change the bands to 1%, 3% and 5%, so I think that really is about as good as we can hope for from an income tax perspective because I'm just not sure that there is much space there em and it really has been I think the results of the last election have been slightly misinterpreted as that people don't want tax cuts because they didn't vote for the parties that were promising the tax cuts, but really if you look at it, well over 50% of the population gave their preference to parties that were promising tax cuts so I think that narrative has crept in and I don't thinks that's correct but it certainly has had an impact and ye know working people should not be looking forward to to much of a change in their take-home pay as a result of budget 2017.
Ciara: And income tax for high earners, will there be a change?
Christine: There was mention of removing the PAYE credit for those earning over €100 grand but these rumours were hand in hand with rumours they would abolish the USC completely. Given the fact that we really don't see that happening, I think it's probably more likely that we would see changes removing lower earner, maybe not providing the same level of relief for higher earners, probably using the cap system again to ensure that high earners don't benefit from the relieving measures they are introducing specifically for those lower earners.
Barry: Yeh there’s no appetite for any additional tax relief for higher earners at the moment, so I think any changes will be aimed at lower earners and the extent of the relief will be capped absolutely.
Ciara: And so what's happening with the water charges?
Barry: Well at the moment, the water charges, they've been suspended until at such time an expert review panel makes a recommendation. The Dáil will then vote on the recommendation that is made. Given the change in stance recently by Fianna Fáil where they said that they're no longer in favour of charges, to a certain extent they've pre-empted that process em so it’s unlikely that even if the expert commission recommends retention of a charge it seems unlikely at this point that that will succeed and that that will be ratified by the Dáil, which effectively means that were at a stage where I believe charges have been scrapped now effectively.
The average Irish tax refund is €1,880
Ciara: So, is there any chance of it being refunded through a tax credit of any sort?
Barry: I think that people would be extremely put out if it wasn't to be refunded in some shape or form, and refunded via tax credit would seem to be a fair way to do it, and would seem to look after people who did make the payment and ye have to remember that over half, approx. 70% of people registered with Irish water and approx. 60% of people paid this, so I don't think you can turn around to half the country and say em you paid this cos you were supposed to pay it and now you are not getting it back.
Christine: I think the difficulty though with refunding it via tax credit would be that there are people out there who probably have no income tax that they are paying in the current year, so I think that if they were to introduce the refund via tax credit they would need to think a bit broader.
Barry: It certainly doesn't capture everybody that needs to be refunded and that would em anybody who paid should be refunded really in my view and I think that the political will is that the people who did pay, everybody should be treated equally, whether that means everybody pays or nobody pays it has, the same has to apply to everyone.
Ciara: Do you think they will reduce income tax for the self-employed?
Christine: Well we have seen the earned income credit of 550 euro introduced last year and we do expect some increase here. There's also been a focus as I understand on the social security benefits available for self-employed workers em and I believe the government are looking at a way of providing better benefits for them in term of illness benefit, jobseekers benefit and so on.
Barry: Yes they'll definitely increase again, the earned income tax credit is certainly one of the ones one of the few measures we would say that's a lock. That cost approx. 61 million last year, so again we would anticipate a further 60 million of the available space for tax cuts would go on that earned income tax credit being increased from 550 up to 1,100 euro.
Ciara: The home carer tax credit, will it be increased?
Christine: We saw an increase in the home carer tax credit last year when it went up from I think it was 810 euro to 1000 euro as I said that was very much welcomed. We'll probably see some increase in the home carer tax credit in the upcoming budget as well.
Barry: And given the amount of space that they have its unlikely to see a high increase, there had been some promises pre-election that it would be doubled from 100 to 2000. That would cost approximately 80 million so I don't think its realistic to happen. And again, pre-election promises at this stage are absolutely irrelevant.
It's what's in the programme for government that's going to guide the measures that will be introduced. Doubling the home carer or even increasing it to 1650 in line with the PAYE credit I don't think that's gonna happen this year, I think they might go half way, they might increase it to 1325, this year, which again, would carry a cost with it of approx. 30 million. I don't see that there’s much more space to do anything else with that.
Ciara: And are they going to increase the tax on cigarettes again?
Christine: I think that's always been known as the old reliable isn't it, ye know that we can certainly rely on the fact that we will see some increases on excise duties.
Barry: Yep brought in again, 50 cents to translate at current consumption rates approximately 60 million so if you do increase that then you could effectively, that would pay for the increase in the in the self-employed earned income credit so I think cigarettes will be hit again.
Ciara: A sugar tax has been proposed as part of the plan to fight obesity, what exactly is the plan?
Christine: I think a sugar tax is definitely on the menu, most likely however it will be delayed until 2018 and I understand that any move in this area will mirror UK changes because otherwise we would have to consider the impact on trade being handed over the border.
Barry: Yeh they don't want to incentivize somebody to go to the UK em at the moment, I mean the FX rate has gotten far more favourable in the last few months as a result of Brexit so a further incentive to shop in the uk is not gonna be introduced at this point I think they've been reasonably clear that it will be 2018 when the sugar tax kicks in. It is one of a raft of measures that they are introducing. A sugar tax on its own isn't going to do a huge amount em what I think a lot of people would like to see is the benefit of the extra tax from the sugar tax ringfenced and reinvested in fitness for schools programmes or in some other way so you can see a direct correlation between the tax and the fight against obesity which is a very important one going into the future.
Ciara: So what’s happening with Capital Acquisitions Tax?
Christine: In the area of capital acquisitions tax, we're expecting to see some increases in thresholds, particularly the group A thresholds for gifts from parents to their children there has been rumours about seeing an increase in that from the current level of 280,000 to 500,000 however we would expect to see that on a phased basis, rather than see such such a significant increase in the upcoming budget.
Barry: Yeh one of the things you want to avoid is you want to avoid a situation where people think that the big jump is gonna happen next year, and that hey might hold off on passing inheritances til next year because they think that there might be a huge increase, so that's the argument to be made for making the big jump now from 28 to 500 thousand.
Em I don't think that there’s enough room to do that again, last year they increased it by 55,000 and that cost 33 million so what you’re looking at if you wanted to go half way, again it would cost approximately 60-70 million if you wanted to raise the threshold half way between 280 and 500 up to eh maybe 390,000 and that would also then, it would take into account the fact that house prices have rebounded from the bottom. We learned during the week that it was approximately em 43.44% is what they're up, so therefore all you're really doing, is that you're indexing that relief em to the rise in house prices, which is the primary asset that gets transferred em between the generations.
Free PDF guide to PAYE taxes in Ireland
Ciara: Any changes to capital gains tax and could you just briefly explain what that is?
Christine: A capital Gain a tax is a tax that arises on the disposal of assets so the person disposing of the asset will make a gain which is based upon the difference between what they sell it for and what they originally bought it for. I suppose that a very short summary of capital gains tax. We are expecting some potential rate changes particularly for new startups with entrepreneurial relief being brought more into line with the UK.
Barry: Yeh they're under pressure to match the UK offering to make sure that there is no perceived lack of competitiveness with the UK to make sure we're not providing anyone with an excuse to leave the county and setup in the UK instead. Again there's scope for that, the UK regime has reduced capital gains for entrepreneurs to 10% whereas ours is currently 20% em and there's a cap of em 10 million in the UK which we would expect the government to match.
Short term it isn't going to have a huge impact on the finances, it really is a longer term move to try to position the country in a competitive place internationally so this is one of the areas where you could see some movement because it isn't gonna cost the government in the short term.
Ciara: Minister Simon Coveney is proposing a scheme for first time buyers, what form is this likely to take?
Christine: We're expecting some type of a grant or a refund, em it could be for example a VAT refund. The problem in this area is the knock on effect em and will the relief really be passed onto the first time buyers or will it be something that will essentially just push up the house prices further. I mean we did see with the introduction of the DIRT measures there in the last budget, the effect definitely wasn't something that was enjoyed by first time buyers.
Barry: No it's always the question the unintended consequence you just simply that you add 5 or 10 thousand euro onto the cost of the house, when the seller learns that the buyer is a first time buyer and is entitled to that. It will probably take the form of some sort of a refund. I think effectively this is window dressing. The restriction for first time buyers in terms of borrowing has had an effect in reducing the number of people that are first time buyers. It's down from approximately 50% of buyers 5 years ago to approx. 25'% now.
The number of first time buyers is halved, they need something but it really is difficult to imagine any sort of a break that could be given that really would convince somebody that isn't looking to buy, to buy. I mean, ye know it would need to be a fairly massive investment. 5 or 10 thousand euro em isn't huge for a lot of the counties, it might make a difference where we see the average cost of a house in for example Castelrea in Roscommon area would be em approximately 80 thousand so that might make a difference rurally and that's how you might see this brought in because that is the area that they'll be looking to make a difference in. Effectively for first time buyers in D4 and D6 where the average price of a house is over 700,000, it's not gonna make a huge difference.
Christine: I think that when it comes to anything like announcements in relation to first time buyers or relief for them, it’s probably something that gives the government a good news story, something that sounds great and makes people feel good but in reality I don't see that it's gonna be of significant benefit to any real first time buyer.
Ciara: And what about DIRT?
Christine: I'd say that definitely a reduction in the DIRT rate would be most welcome and there has been some rumblings in that area.
Barry: Yeh the tax strategy group suggested a drop from 41 to 40% which is I think, I don't think, eh most people measuring that saving in cent rather than in euro, I just don't see the point in doing that whatsoever. I don't think that there'll be anything on DIRT no.
Christine: I think even a reduction of 1% wouldn't go near enough to where really where people would like it to be if we go back to the 2006, 2007 situation where people were looking at a DIRT rate of 20%.
Ciara: And what do you need to apply for a refund with Taxback.com
Barry: You need your PPS number and you need to make contact with us and we'll look after everything from there. You will be brought through the process by an agent who will explain exactly what we need and exactly what we have. It's possible to do so online you just go to Taxback.com and you look up how to how to contact us. We'll get back in contact with you and we'll make the process as simple and straightforward as possible.
Ciara: Thank you! So that's it for this week's episode of the Budget 2017 podcast. Special thanks to Barry Flanagan and Christine Keily of Taxback.com. I'm Ciara Kennedy. In the next episode, we’ll be covering all the other main changes predicted in Budget 2017.