Tax Measures Announced for Budget 2012

BUDGET 2012 — TAXATION OVERVIEW

Broad Revenue Targets
• A €3.8bn total adjustment of which €1.6bn is from tax & €2.2bn from spending reductions.
• Only €1.6bn of this adjustment from tax because international experience shows that cuts in spending are better than increasing tax for fixing deficits, or growth and jobs than.
• But €600m of this tax figure is carry over from measures in the last budget. So new tax measures only need to raise €1bn. When this carry over is excluded, this gives a 2:1 ratio for 2012 on spending/tax.
• Key Message: With regard to any individual tax measure below, it is better for the economy to increase this tax rather than increase income tax which will affect jobs.

Delivered No Income tax Increase to Support Jobs
• Income tax is a tax on jobs. We have managed not to increase this in a jobs crisis. The Commission on Taxation said “taxes on labour should be kept low to support employment”
• This will give households certainty on their take home pay.
• The top rate of tax (incl PRSI & USC) imposes high marginal rates (52%) at modest incomes (€32,800)
• Almost 80% of the previous govt’s taxation changes have fallen on income / labour. And Fianna Fail planned a further €630m in income tax hikes by 2014

Promoting Economic Growth
• International trade / FDI: No change in 12.5% corporation tax rate. ‘Special Assignee Relief Programme’ to allow companies to attract key people to Ireland. Foreign Earnings Deduction to support our export drive to BRICS countries
• R&D measures targeted at indigenous industry.
• Measures to encourage Property Transactions: stamp duty on commercial property to decrease from 6% to 2%; a Capital Gains Tax exemption (for 7 years’ value gain)
• Measures to help Agri-Food sector: Encourage the transfer of farms to the next generation through Stamp Duty reduction; Farmers will also be significant beneficiaries of the reduction in the USC.

USC Exemption for lowest Paid — Fairness
• The exemption level from the USC will be raised from €4004 to €10,036,
• This benefits nearly 330,000 people who are on the lowest incomes

Capital Taxes — Fairness & raise €166m
• Increase from 25% to 30% in both CAT (Capital Acquisitions Tax) refers to inheritances & CGT (Capital Gains Tax) refers to selling assets
• Increase from 27% to 30% in DIRT rate taxing those with interest from savings. This makes saving less attractive and should encourage consumption.

High Earners Measures — Fairness
• Extended PRSI to include unearned income such as rental income, dividends and investments. It will improve equity as all income will be taxed on the same basis.
• Legacy Property Tax Reliefs: a property relief surcharge of 5 per cent will be imposed on investors with an annual gross income over €100,000
• Pensions: various measures on Approved Retirement Funds and ‘vested’ PRSAs on assets in excess of €2m
• “tax exiles”: abolishing the “citizenship” condition for payment of the Domicile Levy so as to ensure that “tax exiles” cannot avoid it by renouncing their citizenship.

Mortgage Interest Relief — help negative equity generation
• Increasing mortgage interest relief to 30% for First Time Buyers in 2004-08, from the current sliding scale of 20% to 25%.
• This is targeted to those who took out their mortgage during the peak years of the housing bubble, and are thus more likely to be in negative equity.
• Fulfilling a key Programme for Government commitment.

2% VAT Increase — to raise €560m
• When taxes have to be increased, the OECD / Commission on Taxation / ESRI support an increase in indirect tax (e.g. VAT) rather than direct tax (e.g. income tax).
• Other European countries are doing it: 20 of 27 MS have increased VAT in the last 4 years
• Effect on the domestic economy: The UK has increased its standard rate of VAT so now at 20%, and the exchange rate is a bigger factor for cross border shopping. And not increasing income tax will offset consumer confidence.
• We will limit the top rate of VAT to 23% as per the Programme for Government
• It is part of the troika agreement. Fianna Fáil are just delaying it.
• Delayed until January 1st so no effect on Christmas trade
• €500 per household claim is inaccurate; as business contributes to the total yield as well.

Household charge of €100 p.a. — to raise circa €160m
• OECD / Commission on Taxation / ESRI say property tax is least damaging to economy.
• Is a flat rate charge unfair? It is temporary until a valuation system is in place, and then the amount of tax can be based on the house / site value. The previous govt. announced a property tax but didn’t put the groundwork in place.
• Waivers for those on mortgage interest supplement and those residing in certain unfinished housing estates

Carbon tax — to raise €80m
• €5 per tonne increase from €15 to €20.
• Increasing the price on carbon (the tax rate) will change behaviour to reduce our greenhouse gas emissions combating climate change
• Increasing the carbon tax means a relatively small increase spread across all fossil fuels rather than larger increases in the excise rates on specific fuels, such as petrol or diesel.

Motor Tax — to raise €46.5m
• Rates to increase across all categories. They average 7.5%, with flat rate increase at the low carbon end.
• This is a rebalancing of the system. When the system changed to be carbon based, and many people switched to low carbon cars, the motor tax for many decreased.