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Pat McArdle, Chief Economist, Ulster Bank
in a comment on the Budget said:
"The budget was broadly as expected but less expansionary than feared. This was reflected in a surplus of 1.2%, a tax package of under €1 billion and the curtailment of the growth in current spending to 11.5%. All in all difficult to criticise it from an economic perspective but some disappointment with the tax and spending measures may emerge'."
COMMENTS FROM ERNST & YOUNG TAX EXPERTS:
Income Tax – Jim Ryan, Tax Partner
"While the reduction in the income tax rate to 41% is welcome it is disappointing that the Minister did not use the opportunity of significant surpluses to meet the commitment made in the Agreed Programme for Government to reduce to 40%. However, most people will be happy with the increases in tax credits and tax bands."
Tax Credit for Research and Development – Joe Bollard, Tax Partner
"The Minister announced some welcome improvements to the R&D tax credit system. However, these changes fall significantly short of making the Irish regime competitive relative to the systems available overseas. Ireland has a proven track record in using tax incentives in attracting high-quality foreign investment to Ireland. We encourage the Minister to urgently consider investment in a long-term tax incentive package which will promote Ireland as the global centre for innovation and knowledge based industries."
Business Expansion Scheme – PJ Henehan, Tax Partner
“The extension of the relief for a further seven years and the increase in the amount of funding which companies can raise from BES schemes are welcome. Whether these changes achieve the objective of freeing up more risk capital for small businesses is questionable in light of the 2006 Finance Act cap on investment reliefs available for high income earners. Interestingly, the annual limit available to investors in Film Investment schemes remains unchanged.”
Administrative Burden for Business – David Smyth, Tax Partner
“The Minister’s long overdue package of measures aimed at reducing the administrative burden for business will be welcomed especially by small businesses for which compliance costs represent a significant burden. The removal for start up companies of the obligation to pay preliminary tax is particularly helpful as complying with preliminary tax rules can be difficult and time consuming.”
Environmental Taxes – Breen Cassidy, Tax Partner
"Motorists are to be encouraged to drive more environmentally friendly cars following the announcement of a consultation process on the linking of VRT rates to CO2 emissions. The Minister intends that there should be some reward in the VRT system for choosing lower-emission vehicles, and that those choosing higher-emission vehicles should pay more. The Minister has set out a range of options for discussion in a Budget booklet that should result in the implementation of a revised VRT system from the start of 2008."
VAT – Breen Cassidy, Tax Partner
"The Minister has announced that a specific measure will be introduced in 2007 to allow VAT deductibility in respect to conference related accommodation expenses. This is a welcome development which will go some way to ensuring Ireland is not at a major competitive disadvantage when attempting to attract the lucrative conference sector business to Ireland."
IBEC
Turlough O’Sullivan, Director General of IBEC said: "This Budget will promote innovation and investment. It has increased the reward from work and has also been generous to those on fixed incomes such as pensioners.
The Budget will however put a lot of money into an already overheated economy, though the proposed increase in capital spending by 13% is very welcome and should go a considerable distance towards addressing the infrastructure deficit. The 11½ % increase in current public spending is on the high side, notwithstanding the pressures on the services required from a rapidly expanding population.
"The balance of the Budget is weighted more towards increasing domestic demand than restoring the capacity of the country to trade successfully. On the surface, Ireland is celebrating high living standards: this cannot continue unless we get back to exporting more than we import.
"Over the last two years, the economy has been driven by strong surges in domestic demand. This has been due to buoyant activity in construction and consumer spending – both of which have been fuelled by the availability of cheap money. The real engine of growth of this small trading nation is our capacity to sell goods and services overseas at competitive prices. Rapidly rising costs and poor productivity have led to a sharp decline in Ireland’s market share of international trade."
"The substantial reduction in income tax must ensure strict adherence to the terms agreed in Towards 2016."
Specifically IBEC welcomes the following:
- The changes in the R&D tax credit scheme will help boost innovationand improve the competitiveness of Irish business.
- The extension and expansion of the Business Expansion Scheme is auseful initiative to support the productive sectors of the economy.
- It has also been a good Budget for entrepreneurship through improvedsupport for start-ups and SMEs.
Regrets for Budget 2007
- IBEC is particularly disappointed that government did not freeze the price of publicly administered services for a period of at least twelve months.
- The Budget should have introduced more meaningful measures to promote energy efficiency and help businesses meet spiraling fuel bills.
- Government should have used the Budget as an opportunity to extend equal tax incentives to all income earners to provide for a pension by giving relief to everyone at the higher rate.
Institute of Chartered Accountants in Ireland
Business gets its share in substantial Budget package
The Institute of Chartered Accountants in Ireland (ICAI) has welcomed the amendment to corporation tax payment rules, the extension of the Business Expansion Scheme and improvements to tax relief for Research & Development activities announced by Minister Cowen in today’s Budget.
Commenting ICAI Director of Taxation, Brian Keegan said:
“Tax incentives influence commercial behaviour and the Minister has moved wisely today to promote business activity.
The increase to €2m which companies can raise in BES funding is more realistic in the current economic environment and should increase the use of the BES as identified in this week’s Forfas report.
Increasing the amount which an individual can invest by a factor of five to €150,000 will make BES investments more attractive, and simplify the administration, and hence the cost, of raising such funds. Most BES funds raised go towards product development and increasing employment levels. The extension of BES should not contribute further to the debate about tax paid by high earning individuals as it seems that BES will remain limited under the overall cap on reliefs availed of by individuals in any one tax year.
The R&D announcement is significant. Ireland operates an incremental R&D system of tax credits – relief is not based on the amount that is spent, but on the amount spent in excess of what was spent over a defined base year. By fixing the base year at 2003 for a further period of three years, the Minister is improving the incentive to increase R&D expenditure. This will make our R&D incentive system more comparable with R&D incentive regimes in other territories. 15 EU member states have some form of tax based incentive for R&D activity.
The Minister has also recognized the difficulties encountered by business in meeting their tax obligations by simplifying the rules for company tax payments. The new measures will allow most companies to base their tax payments on the previous year’s outcome, as is currently the case for the self employed.
The burden of VAT administration, where traders effectively act as collection agents for Revenue, is also reduced by halving the number of returns to be made. For smaller businesses, the threshold below which they need not account for VAT has been raised up to €70,000, which is approaching the maximum permissible under EU rules, and meets the recommendations of the Small Business Forum.
There is no tax cost to simplifying the system for all compliant taxpayers. We welcome what the Minister has announced, and see it as part of a process of making the tax rules less complicated for individuals and companies alike. It is clear that the Minister has taken into account the work of the Small Business Forum, Forfas and suggestions from representative bodies such as ICAI in formulating his Budget measures.
Taken together, these changes have the common theme of assisting business in start-up and development phases, and while companies generally will be able to avail of the changes, they are clearly of most relevance to the indigenous Small and Medium Enterprise sector.
The benefits of the reductions in income tax and PRSI should not be underestimated in the context of the SME payroll burden.”
Construction Industry Federation (CIF)
The Construction Industry Federation has welcomed the package of measures in the Budget aimed at supporting small businesses. The CIF is pleased that the Minister has recognised the importance of small business to the Irish economy. In particular CIF welcomes the reduction of the administrative burden on small businesses. One quarter of all small businesses in Ireland are in the construction sector.
The extension of the BES Scheme for another seven years is particularly welcome as is the increase in the investor limit to €150,000.
CIF welcomes the assistance given to first time house buyers, including those who have already bought, in today’s Budget, which will underpin confidence in the housing market and help maintain continued high output.
According to the CIF’s Director General, Liam Kelleher, “doubling the thresholds for mortgage interest relief will assist first time buyers by €133 for a married couple and €66.50 for a single person. The measure therefore will facilitate first time home ownership for those wishing to gain a foothold on the property ladder and in a way that will not impact house prices. It will also underpin an active housing market in 2007 and support the retention of government revenues from the sector”.
“Our focus in this budget has been very much on the first time buyer, and building confidence and capacity amongst first time buyers through targeted measures such as increased mortgage interest relief. Clearly, however, there is still a need for an overhaul of the stamp duty regime”.
Commenting on other aspects of the Budget, Mr. Kelleher welcomed taxation measures aimed at “maintaining the value of take home pay for workers at a time when it is under pressure from emerging price inflation”.
CIF believes that an opportunity to promote more sustainable buildings has been missed, particularly in respect of the House of Tomorrow scheme operated by Sustainable Energy Ireland (SEI). “The SEI initiative has proved very popular but is limited to schemes of 50 houses. At a time when the industry is producing, by international as well as national standards, record numbers of houses, this is a missed opportunity”.
Irish Taxation Institute
The Irish Taxation Institute (ITI) has welcomed Budget ’07, with ITI Chief Executive, Mark Redmond saying it demonstrates that innovative tax policies remain central to future economic growth and competitiveness.
Redmond said the ITI welcomes changes which continue to underpin the important role of small business in the Irish economy, in particular the changes on preliminary corporation tax and the extension of the BES and Seed Capital schemes.
Referring to the announcement of new measures on preliminary corporation tax payments for start-up businesses, Redmond said these changes provide greater certainty and lessen the burden on start-ups in the critical first year.
It had been indicated by Revenue in recent weeks that this incentive was to end in 2006 and ITI are particularly pleased that following its intervention, the Minister has reversed the decision.
Redmond said: “The announcement today that the preliminary tax incentive for start-ups is set to continue, with the trebling of the threshold to €150,000, is highly appropriate. ITI advocated the need to keep this measure in place. The first year of any business is always a time of pressure. Measures such as today’s change recognise this and we commend the Minister for his action.”
On personal tax, ITI estimates that taking changes on income tax, PRSI and social welfare into account, the top 20% of taxpayers will be better off by 2.4% with the lower 20% of taxpayers benefiting to the tune of 9.4%.
On first time buyers, ITI welcomed the changes on mortgage interest relief, saying it ensures those who need the benefit, get the benefit without inflating house prices.
“Allowing VAT refunds on hotel costs for conference visitors gives an enormous boost to marketing Ireland and in gaining a greater share €40 billion global conference market. This positive change in the treatment of VAT on business expenditure in hotels puts Ireland on a more even playing field with other EU countries when competing in the business tourism market. It will ensure Ireland is successfully positioned as one of the key locations on the international conference map,” says Annette Devine, President, Irish Hotels Federation (IHF) in response to Budget 2007. “We await the details of this measure in the Finance Bill.”
Irish Hotels Federation
“This progressive VAT measure will also be a major asset in promoting Dublin as a major international conference destination when combined with the expected shortly to be announced definitive completion date for the national conference centre in Dublin,” says Ms Devine.
The IHF also acknowledged the 1% cut in the top rate of personal income tax and the raising of tax credits and tax bands. It suggests that these measures will contribute to maintaining the level of domestic disposable income which is so important in continuing the growth in the Irish economy and are a major driver in the continuous growth of the domestic tourism.
It stated it is a significant pro tourism budget and that these measures combined with the 9% increase in the tourism funding allocation, already announced in the Estimates are a major boost for the sector.
The IHF welcomed the announcements by Brian Cowen T.D., Minister for Finance which it stated recognises the value of tourism to the national economy. It also acknowledged the work by John O’Donoghue T.D., Minister for Arts, Sport and Tourism in keeping tourism high on the Government’s agenda.
"The tourism industry is this country’s largest indigenous employer in which approximately 140,000 people are employed. It is a major contributor to the economy – the Exchequer received €2.5 billion in taxation from tourism in 2005 and allowing for indirect and induced effects, tourism accounted for 3.8%. Its success affects every single city, town and village in this country. The progressive announcements today will assist our sector’s ambitions to increase tourism visitor numbers to some 10 million visitors to Ireland by 2010. We welcome ongoing Government progressive policies to safeguard this important industry,” concludes Ms Devine.
Friends of the Earth
Today's budget makes clear that the Government plans to buy its way out of Ireland's commitment under the Kyoto Protocol to tackle climate change. The Minister announced he was putting 270 million euro aside to buy "carbon credits" overseas to cover Ireland's excess carbon pollution. The Minister claimed, however, that Ireland would meet its Kyoto commitment "mainly through reducing carbon emissions in our own economy". In fact Ireland's carbon emissions are rising and the Government's own figures predict a 35 million tonne overshoot for the five year Kyoto commitment period from 2008 to 2012. Today's budget makes provision to buy credits for over half that, 18m tonnes. Business is expected to buy another 10 million tonnes and another 7 million tonnes remain unaccounted for. The Government hopes a new climate action plan will eliminate those emissions, otherwise the taxpayers will have to pick up the tab for that too.
Friends of the Earth Director, Oisin Coghlan, commented:
"With this budget the Government's Kyoto cop-out is complete. The Minister plans to waste 270 million euro of taxpayers' money on buying carbon pollution permits overseas rather than investing in cutting pollution at home. That's more than the 50m euro spent on the e-voting machines, every year, for the five years of Kyoto. Moreover, instead of putting a price on carbon so as to cut pollution and pay for permits the Minister is taking the money from general taxation. So the polluter has no incentive to reduce pollution and the average taxpayer pays the price. It's a form of stealth tax.
Irish Software Association
Extension of business schemes to benefit the indigenous technology sector
The Irish Software Association (ISA), the IBEC body representing the software sector, today welcomed the announcement that the Business Expansion Scheme (BES) and Seed Capital Scheme (SCS) will be continued for another seven years to 2013 and allow for significant annual company and personal investment limits. The ISA has lobbied consistently for the extension of two schemes that support start-up and early stage technology firms and today's decision by the Minister is a positive move in supporting the development of an innovation, high value indigenous technology industry.
Director of the ISA, Michèle Quinn, said: "The ISA sought and secured an extension of both schemes to 2013 and an increase in the investment limits.
The increase in the investment limits per company up to €2 million (from existing limit of €1 million) and an increase in personal investment limits from €31,750 to €150,000 per annum for the BES and €100,000 for the SCS are welcomed".
"Access to funding between the business idea stage and the later stages of growth and export is the largest hurdle for start-up companies. The ISA believes that this decision will encourage a greater level of investment in small high-risk innovative companies".
The ISA also recommended improvements to the existing R&D tax credit scheme to encourage more research and innovation, through the extension of the base period. While welcoming the changes in the R&D tax credit scheme, the ISA is disappointed that the Government did not make any significant moves to make the existing R&D tax credits scheme more accessible to SMEs, many of whom do not qualify under the existing scheme. The ISA is seeking a tax credit scheme based on PRSI costs.
"While we welcome these measures in today’s budget, they still remain only a part of a suite of measures needed to support the development of the indigenous technology industry and reward high value risk investment", concluded Ms Quinn.
Irish Mortgage Corporation
Irish Mortgage Corporation welcomes today’s budget announcement to double the rate of Mortgage Interest Relief for first time buyers.
“The doubling of relief effectively wipes out 2 of the most recent rate increases and is fantastic news for first time buyers” said Frank Conway, Director with Irish Mortgage Corporation.
The maximum allowance for a joint first time buyer couple is being increased by €133.33 per month. This means that a qualifying couple benefiting from the maximum increase will effectively have the last 2 interest rate hikes wiped off their monthly mortgage repayments.
First time buyers will further benefit from changes in the income tax allowances made by the Government through an increase in their net take home pay and subsequently in their borrowings.
Institute of Certified Public Accountants in Ireland
Pro-business budget cuts through red tape
"Today's business owners are spending inordinate amounts of their time managing compliance issues when they should actually be running their businesses and this is clearly having an impact on competitiveness. Today's budget champions small business and is good news to anyone considering a new business start up", commented Brian Purcell, Chair of The Institute of Certified Public Accountants (CPA) Taxation Committee.
The CPA broadly welcomes a budget, which streamlines and simplifies the tax administration burden for small firms. In addition it contained a range of pro-business measures, including the extension of BES and Seed Capital schemes and large increases in tax breaks for business investment.
The CPA has lobbied for alleviating the onerous administrative burden on small business and warmly welcomes measures including a decrease in the number of VAT returns to 2-3 per annum, an increase in the corporation tax liability threshold to EUR 150,000 and an abolishment of preliminary tax for new business start ups. The VAT thresholds for good and services have also increased, which is some progress but still fall short of UK limits. The abolishment of preliminary tax for start ups for the first year is also a positive move.
ICT Ireland
ICT Ireland welcomes changes in R&D incentives but raises concerns about missed opportunity to invest in technology for schools
ICT Ireland, the IBEC group that represents Ireland’s high tech sector, today welcomed the Government’s commitment to promoting R&D. ‘The extension of the rolling base year from three to six years and the qualification of sub-contracted R&D will make the scheme more relevant to the technology sector,' said Kathryn Raleigh, Director of ICT Ireland.
However, ICT Ireland is concerned that the Government missed an opportunity to increase the spend on technology in education. The total spend, announced in the estimates equates to €40 per student (based on pupil enrolment of 781,000 ). ‘This is utterly inadequate and significantly behind that being invested in England, which spends on average €110 per student on technology’, Kathryn said.
ICT Ireland also raised concerns with the Government’s failure to announce any detailed measures to alleviate the high cost of energy in today’s Budget. ‘The cost of doing business in Ireland has increased dramatically in the last few years and will be made worse by recent energy price hikes.
The Government has failed to introduce an effective strategy today to deal with the energy problem in the long term’, Kathryn said.
Green Energy Initiatives, Donal Buckley, MD Kedco Group
"We welcome the increase in funding which has been apportioned to the greener home scheme and also the Minister's comments on the continuing uptake of grants by both residential and commercial customers, which Kedco has seen first hand from the number of boilers that are now on order."
"Kedco is encouraged to hear that non commercial organisations can now obtain grants of 30% of the purchase price of one of Kedco's tailored biomass systems. We are also delighted to see the increase which SEI deservably received in the budget as their contribution to the industry has been significant to date. However Kedco do feel that part of the €270million that is being used to purchase the carbon credits could have been used to further enhance the biomass industry in Ireland."
The Irish Medical Devices Association
The Irish Medical Devices Association (IMDA), the IBEC group that represents the medical devices sector today welcomed the 2007 budget as largely positive for the sector employing over 26,000 people.
Sharon Higgins, IMDA Director, said "If we are to continue to compete globally, we must keep inflation down, boost productivity and increase the amount invested in R&D. The extension in the base year for incremental R&D tax credits is great news for our rapidly developing industry, providing enormous incentives for companies to increase R&D capability and capacity.
It is very important that clinical investigations, a vital component of any medical device company's R&D process, are included under the R&D tax credit scheme. We look forward to clarifying the situation in the coming weeks.
The Minister's decision to extend the Business Expansion Scheme for a further seven years and to significantly increase both the individual and company limits is very positive for the growing indigenous sector."
"However, Ireland’s rising energy costs represent a real threat to future growth. Medical devices and diagnostic companies are very disappointed that the Minister did not take the opportunity of this budget to reduce excise duty on fuel".
Ireland has been very successful in developing an internationally renowned centre for medical technology. More than 140 companies develop and make medical devices. These companies employ 26,000 people and export medical products amounting to approximately €6 billion per annum, which represents 9% of Ireland’s total exports.
A recent Government survey has shown that 80% of the companies in the sector are "innovation active". Local investment is considerable; the sector spent €0.82 billion on wages, € 0.39 billion on purchasing Irish materials and €0.44 billion on Irish services in 2004.
Small Firms Association
The Small Firms Association has broadly welcomed today’s Budget and its specific measures to support small business. "The extension of both the Business Expansion Scheme and the Seed Capital Scheme to 2013, and the increase in the individual investment ceiling to €150,000 and €100,000 respectively, will increase their attractiveness to potential investors and encourage more people to set up their own business", commented SFA Chairman, Pat Crotty. "The increase in the overall amount a business can raise through the BES scheme to €2mn makes it a more realistic and viable alternative to businesses trying to raise revenue to grow their businesses. Over the past number of years, there has been a growing disparity between the amount of tax reliefs available for investors in property, rather than in productive enterprise, which the new limits should serve to redress".
However, the Small Firms Association was critical of the €3mn additional funding to promote energy efficiency in SMEs as "a token gesture", which will fail to address the very real cost increases and consequent competitiveness issues that small firms are suffering. In the SFA’s Annual Business Survey, 77% of small businesses identified energy costs as a major business problem, with energy costs running on average 20% higher than in other EU countries. "The Government has received €1bn in additional VAT receipts on rising energy costs over the past 5 years. Allocating just €3mn to help small companies to reduce these costs is simply not enough", stated Mr Crotty.
The Minister’s commitment to reducing the regulatory burden on small firms through increasing the thresholds on corporation tax and VAT was strongly supported by the SFA, in particular the closing of the existing penalty on start-up companies by removing the need to pay preliminary corporation tax.
The Association also welcomed the financial support for the Small Business Forum recommendations of innovation voucher schemes, knowledge-acquisition grants and ICT audits for small business.
Pat Crotty, SFA Chairman also stated that the practical revisions to the R&D tax credit scheme are to be welcomed, "in particular the rolling 6-year base, and allowing 10% of activity to be outsourced, which is particularly important in small firms, where they don’t have the number of employees to have the expertise in-house". However, he believes that specific support measures should be introduced to support the small business sector in developing R&D, if the government is to reach its target of increasing business investment in R&D from its current 0.93% of GNP to its stated target of 1.7% of GNP by 2010, which is line with other knowledge-based economies. "Smaller companies engaged in R&D should be allowed a special 100% tax credit".
"The substantial benefits in real take-home pay for all employees, should deliver wage moderation to the small business community, and ensure no breaches of the terms of the new national agreement, "Towards 2016" ", stated Mr Crotty.
In conclusion, Mr Crotty strongly welcomed the Minister’s ringing endorsement of the small business sector in his budget speech.
