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Thursday, 18th April 2024
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The inevitable question Back  
Was it a good Budget, was it a bad Budget? It is impossible to say, because we cannot agree on what is good and what is bad about Budgets.
How do you judge whether Mr McCreevy’s sixth budget was good or bad? Do you ask whether those dependent on social welfare for income emerged relatively better or worse? Do you ask whether those who do the work that produces the goods and services we all consume had relatively more or less of the wealth they create left in their own back pockets? Do you ask whether the budget killed or created many new productive jobs, actually or potentially? Do you ask whether that forgotten part of the budget, the spending proposals, reduce or increase the State sector, or improve or do nothing about quality of services provided by the State? All are valid questions. Let us apply just one of these possible tests.

Does it hurt jobs?
The increase in stamp duty from 6 per cent to 9 per cent on non-residential assets is a direct up front cost imposed on inward investment. That is so whether the inward investment takes the form of buying a green field site for a new factory, or acquiring an office block for a service undertaking.
It is an additional cost imposed if a businessperson seeks to purchase the goodwill of an existing business or an individual seeks to incorporate an expanding business previously carried on in a partnership or as an individual. It is an attack on competitiveness.
Roll over relief on plant, buildings, and goodwill of a trade has been ended. Assume a business now seeks to move from an unsuitable inner city brown field site to a modern premises outside of Dublin, and it uses the entire disposal proceeds of its old premises to acquire the new premises. It will be obliged to go to the bank to borrow to pay tax on the capital gain on the disposal of the first premises. Effectively we have a tax on modernisation of buildings and of plant. That does not sound friendly towards jobs.
Capital allowance rates on plant and machinery have been reduced. This will to a large extent be felt by the manufacturing sector, who do not benefit from the 12.5 per cent corporation tax rate which for them will represent a tax increase! Does the Minister hope that Ireland’s high tech employees will work with eight-year-old computers? This move does not seem job friendly.
The VAT cost of commercial property for the Financial Services sector has been increased by 1 per cent. This sector has been buoyant in Ireland, to the great benefit of employment and of tax revenues. At a time when job cuts are widespread in the Financial Services sector worldwide, are we wise to increase the cost base of Ireland as a location for that sector?
Capital allowances on hotel buildings are cut from 12.5 per cent per annum to 4 per cent per annum, and hotels are obliged to take a write-off of their plant and machinery over eight years rather than five years as was previously the case. The VAT rate applying to ‘eating out’ and to short term car hire is increased by 1 per cent. The cost base of the tourism industry is directly affected. Will this go without any impact on jobs in the tourism sector?
Roll over relief on disposals of farmland where it is compulsorily acquired, eg for new roads, has been ended. Will this speed up our road programme? Will any consequent slowdown (or indeed entire halt!) to our road programme be without impact on jobs?

The alternatives
It may seem unfair to raise questions over the Minister’s efforts to meet his spending commitments. Is it right to raise questions without offering alternatives? Ministers who focus on government spending will rarely have difficulties with taxation.
Are the services on which tax money is being spent those known to their consumers as of outstanding quality and efficiency? Are they provided without the necessity to resort to rationing in the form of queues and points systems? Are they delivered by employees who derive job satisfaction and opportunities to improve their economic well-being?
These questions might seem remote from a decision to end rollover relief on the sale of a factory building and reinvestment in another factory building, but they are in fact closely related. Poor spending decisions demand harsh taxation decisions which can in turn lead to unemployment queues and emigration boats.

Other objections
A number of the Minister’s proposals are objectionable on the grounds other than their effect on job creation.
The Minister has increased the rate of stamp duty on dealings in non-residential property (which includes most business assets) from 6 per cent to 9 per cent. Given his experiences in the area of capital gains tax, corporation tax, and capital acquisitions tax in the last five years, can it be that the Minister believes that a 50 per cent increase in tax rates will yield increased revenue?
There is a risk that the effect of the increase in rates will be to deter people from transactions. If there are no transactions, there will be no revenue for the Minister, not only in terms of stamp duty but also in terms of capital gains tax.
The bank levy reflects an undesirable discrimination. Why, out of all service industries, should banks be singled out for this special treatment? The Minister has wide powers under the constitution to exercise discretion as to whom he taxes and whom he does not tax. But that power should not be used arbitrarily or irrationally. Ireland’s domestic banks are private property. They are not State piggybanks at one remove.
The Minister has retrospectively denied capital allowances to certain investors in electricity generation. This has been done under the guise of closing a loophole. There was no loophole. There was simply a provision enacted by the Oireachtas which operated precisely as the intention of the Oireachtas was expressed. Retrospective tax legislation should be anathema.

The silence
There may be little to cheer about in the topics the Minister dealt with in his budget. The silence in other areas may yet conceal much more. What of share options? What of transfer pricing? What of research and development credits? What of bloodstock taxation? What of PRSI reform? The Minister has not yet exhausted his fiscal ingenuity. The full story won’t be known until late March when the Finance Bill is finally signed by the President.

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