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Irish Gov't Says Limited Funds For Tax Cuts

by Jason Gorringe,, London

13 July 2017

The Irish Government has said that there is only EUR500m (USD570.6m) available for tax cuts and new spending measures in the 2018 Budget.

Finance Minister Paschal Donohoe has published the Government's Summer Economic Statement. This document forms part of the reformed budgetary process, and is intended to facilitate a discussion of the options available to the Government in advance of the annual Budget in October.

According to the Statement, the Government has "fiscal space" of EUR1.2bn available for 2018. When the full-year cost of measures introduced last year is taken into account, and, in the absence of additional revenue-raising measures, this leaves around EUR500m for new, discretionary measures.

Of this EUR500m, EUR180m is likely to be allocated to public sector pay increases.

The political agreement on which the minority Fine Gael administration was returned to power last year, established a ratio of 2:1 for the allocation of any fiscal space between public spending increases and tax cuts, respectively.

According to the Government's latest calculations, this means that there is just EUR390m for possible tax cuts in 2018. However, EUR170m of this is pre-committed to the carry-forward from Budget 2017 tax measures. In net terms, therefore, EUR220m is available for new taxation measures in Budget 2018.

According to the Statement: "Any additional expenditure measures and tax reduction proposals will require additional discretionary measures unless compensating expenditure reductions are identified." The Tax Strategy Group will set out possible options for revenue increases and reductions later this year.

The Statement explained that the Government sees "a strong economic rationale for a broad income tax base with lower marginal rates that incentivize and reward work."

It added that "reform of the income tax system will be targeted towards middle income earners, underpinned by the objective of making work pay."

The Statement noted the Government's efforts in recent years to reduce high marginal tax rates on labor. It pointed in particular to reductions in the three lowest rates of the Universal Social Charge and the introduction of a tax credit for the self-employed. It confirmed that a new SME-focused share-based remuneration incentive will be introduced in October's Budget.

Turning to business taxation, the Statement stressed that, "in the face of an ever-evolving international tax landscape and recognizing the importance that businesses place on certainty, it is imperative that Ireland maintains its commitment to sustaining an attractive, stable corporate tax regime."

The Statement described the 12.5 percent corporate tax rate as the cornerstone of Ireland's competitive offering, and said that this is supplemented by a research and development tax credit and a Knowledge Development Box.

TAGS: tax | business | Ireland | public sector | budget | corporation tax | tax thresholds | tax rates | revenue statistics | tax reform | individual income tax | research and development

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