home
login
contact
about
Finance Dublin
Finance Jobs
 
Thursday, 18th April 2024
    Home             Archive             Publications             Our Services             Finance Jobs             Events             Surveys & Awards             
Who cooked the budget? Back  
Social partners, politicians, professional lobby groups, trade representative bodies, Civil Servants and even the Minister for Finance all have a hand in drafting a Budget. Whose thumb prints can be discovered on which measures in Mr McCreevy’s sixth Budget?
There is still great mystery over how a budget is made. Many have a hand including employer bodies, trade unions, coalition government partners, industry lobby groups and representative associations and of course the Civil Service. But a competent self confident Minister such as Mr McCreevy clearly had a dominating influence on the budget process.

The promises
It is first useful to see what the coalition parties promised at the last election.
The Progressive Democrats promised no borrowing for current expenditure, no increases in direct taxes, no raid on the pension fund, no increases in PRSI, CGT, corporation tax, or capital acquisitions tax and sale of State assets for investment in infrastructure.
They also favoured environmental taxes on packaging, rebasing VRT in favour of low carbon dioxide emissions, and increasing taxes on tobacco. They promised 20 per cent tax on share options.
Fianna Fail were less specific in their promises which centred on increased use of public private financing initiatives and additional incentives for research and development.
These set of proposals, which did not greatly conflict, were merged into a programme for government that promised
• Increased CGT exemption limits.
• Reform of share option taxation.
• Taxes on packaging.
• Rebasing VRT to favour low carbon dioxide emissions.
Neither party can be accused of not delivering what they promised – being in coalition they may plead force majeur. The Government cannot be accused of breaking its programme – it has a further four years to make good its promises. And they also have a further three months in which to craft a Finance Bill that may look nothing much at all like the budget of 4 December.

The delivery
CGT exemption limits were not increased. Indeed CGT was one of the areas most focused on for extracting additional revenue. Indexation has been terminated, payment dates accelerated, rollover reliefs cancelled, and an exit charge imposed on individuals leaving the country. All in all, that could be taken as a somewhat unsuccessful effort at delivering the programme for government in relation to capital gains tax.
The budget made no reference to the taxation of share options. The share option topic presents at least two major problems. The first is that with the collapse in some equity prices there are taxpayers who have been charged income tax on the exercise of share options at a price which may be higher than the current price of the stock. The subsequent capital loss cannot be relieved against the earlier income tax charge. This problem at least would not be too difficult to solve if there were a will to do so. A straightforward tax relief could be provided.
The second problem is more difficult in that many employers wish to use share options to incentivise a small number of key employees whereas the approved share option scheme legislation (which provides some relief from an otherwise penal treatment of share options) is based on the notion of inclusion of all employees on broadly similar criteria. A solution to the latter problem is more difficult politically.
Neither party in the coalition seem willing to ditch the notion that approved share option schemes have to be open to all, notwithstanding that ‘New Labour’ in the UK have already gone a long way down that road. It may be of course that discussions are still continuing which might find some fruit in the Finance Bill.
The proposed tax on packaging has been pushed off to a review group and does not seem likely to emerge in the immediate future.
The rebasing of VRT on emissions was acted on. In fact it is probably fair to say that most suggestions that could be used by the Minister to extract additional tax were acted on.
The Fianna Fail promise to improve incentives for research and development did not find an echo in the budget speech. This is surprising as there was some pre budget speculation that the Minister would copy the innovative UK research and development tax credit scheme. Once again, the Finance Bill may shed further light on this area.
The Progressive Democrat proposal that there be no increases in PRSI or CGT or corporation tax is certainly is a far cry from what did emerge in the budget. The dilution of capital allowances and the accelerating of the due date for the final payment of corporation tax seem inconsistent with their proposals. The extension of PRSI and health levies to benefits in kind could hardly be other than an increase in PRSI and a tax on job creation. CGT was one of the primary targets in the budget for raising additional finance.
So far, budget 2003 does not show much of the hallmarks of the programme for government, or the election manifestos of the coalition partners. Rather it shows reaction to short term economic circumstances.

Digg.com Del.icio.us Stumbleupon.com Reddit.com Yahoo.com

Home | About Us | Privacy Statement | Contact
©2024 Fintel Publications Ltd. All rights reserved.