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Sunday, 14th April 2024
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An analysis of advice to the Minister for Finance in the framing of Finance Bill 2005 shows widespread support for increasing the standard rate tax band and tax credits and increasing the exemption limit for PRSI and health levies. These is also cross-sectional support for credits for child care for working parents, and there is a widespread focus on Local Authority charges and rates.
Most of the submissions to the Minister for Finance in advance of the Budget on 1 December 2004 contain an analysis of our economic position and comments on economic policy. All of them however sooner or later get down to the nitty gritty of budget day, ie taxation policy.

There is a greater unanimity visible in the pre budget submissions in 2004 than has been the case for some years. The two dominant issues that appear to emerge are income tax and PRSI relief for the lower paid, and reform of Local Government finance, including rates and charges of all sorts.

Personal tax
The Construction Industry Federation, IBEC, SIPTU, Small Firms Association, and the two Bankers Federations, all advise the Minister to increase the standard rate band, and to increase tax credits. SIPTU urge that the increase in tax credits be particularly generous in the area of PAYE credit.

The significance of the PAYE credit as opposed to the personal credit is that it is available only to employees and is not available to the self-employed, including farmers. Equally of course it is not available to those who are not in employment or occupation of any sort, whether due to force of circumstances or due to wealth.

The failure to fully index the standard tax band and standard tax credits in recent budgets has been a form of 'taxation by stealth'. It has had the unfortunate effect of keeping those on the minimum legal wage within the tax net, and keeping low earners subject to the higher tax rate. It is a near certainty that the Minister will act generously in this area.

Child care credits
IBEC, SIPTU, and the Small Firms Association all call for increased childcare credits for working parents. This recognises the fact that childcare cost is a barrier to parents taking up employment and can add to the poverty trap. Philosophers might argue as to whether childcare costs are costs of a decision to have a family or the cost of a decision to have a job but nowadays the right of those with a family to have a job is recognised. The cross sectional support here may move the Minister to take some long overdue action. The existing measures in relation to tax relief for employer’s contributions to cr?ches for their employees have not been successful in facilitating the provision of cr?che facilities in the private sector on the scale of thos available in the public service sector.
PRSI and health levies

IBEC, SIPTU and the Small Firms Association all call for an increase of the income limit up to which there is an exemption from PRSI and health levies. IBEC and the Small Firms Association also call for a retention of the cap on employees’ PRSI. The cap on employers’ PRSI was removed some years ago, substantially increasing the cost of providing employment. The cost of PRSI was also increased in the last budget by extending it to benefits-in-kind. The removal of the cap on employers’ PRSI in particular was one of Mr McCreevy’s errors by directly impacting the competitiveness of Irish labour.

Local authorities
The Chambers of Commerce in Ireland, the Construction Industry Federation, IBEC, and the Small Firms Association all have raised concerns relating to Local Authority financing. Although the concerns are expressed with different emphasis, and in different ways, broadly they point to the fact that Local Authority charges and Local Authority rates have become a major burden for business. In some cases it is not obvious that the charges levied by Local Authorities can be related to the cost to the Local Authority of providing services. Neither is it clear that Local Authority services are provided at minimum cost.
Local Authority charges at present fall almost entirely on the business community and don’t have much of an impact on votes in elections. They are an almost invisible form of taxation in so far as the general population is concerned. They are also an imposition on business which seems to be the subject of little regulation by D?il ?ireann.

On a related matter, both IBEC and the Small Firms Association urge the introduction of domestic water charges. IBEC also call for an extension of Local Authority rates beyond the present 'business only' base to cover all other non-domestic property.
IBEC and the Small Firms Association and Chambers of Commerce in Ireland draw attention to the problem which a Local Authority faces if it outsources its services. It is exposed to irrecoverable VAT in many instances since the service provider may have to charge the Local Authority VAT on its fees. This is something which the Financial Services Industry will readily understand since they suffer a similar problem when they try to achieve efficiencies through outsourcing.

An unusual grouping of the Chambers of Commerce of Ireland and CORI suggests forms of a new land tax. CORI favour a 'land rent tax' to increase the tax take from property. In the light of the extensive land holdings of the religious orders, that must be said to be a truly altruistic recommendation. The Chambers of Commerce in Ireland want a 'site-value tax on all property other than principal private residences'. They envisages the revenue going to the Local Authorities. They would see this as a replacement for commercial rates. Were this suggestion to be adopted, those most likely to be adversely affected would be owners of agricultural land, and owners of holiday homes and rented residential properties.

CGT
The Construction Industry Federation and IBEC both call for the reintroduction of indexation in the computation of capital gains tax. Indexation is an uplift in the cost of assets to reflect inflation.

Pensions
Both IBEC and SIPTU unite in urging the Minister to consider tax incentives that would facilitate the conversion of the special savings investment accounts into long-term pensions. This cross sectional support may influence the Minister. There is undoubtedly a very large amount of money the holders of which will soon have a choice between consumption or saving. With the economy already expanding strongly, and with long term pension under funding an apparent reality, the Minister may think it prudent to take action to ensure that the funds remain in the 'savings' pot rather than in shop tills.
SIPTU have some other innovative proposals in the area of pensions. They propose that child benefit be increased by 10 per cent but that this increase be transferred into a special pensions account for the child. It also proposes that tax relief will be available for additional contributions to the pension account by parents, grand parents etc, subject to a limit.

SIPTU also propose additional tax incentives to encourage additional funding by both employers and employees to pension funds which presently are under funded due to recent poor investment performance. They suggest that employers might get a temporary tax write-off in excess of 100% for additional contributions, and that the Revenue limits on employee contributions, and on AVCs be relaxed for those willing to inject their special savings investment account moneys into pension funds.

Stamp duties
Both IBEC and the Banking Federations call for a reduction on stamp duty on ATM, Laser and credit cards. The present method of levying the stamp duty which ensures that people are unlikely to have more than one credit card, and which is a disincentive to switching cards in mid-year, may well attract attention from the EU in any event. It is an area where the Minister may consider it prudent to act before he is forced to act.


IBEC are calling for a reduction in the VAT rate over five years to 17? per cent.
IBEC are strongly opposed to any extension of the deadline for the various property renewal schemes, whereas the Construction Industry Federation are concerned that the deadlines should be extended where completion of projects is held up for reasons outside the developer’s control.

SIMI call for a reduction in VRT and for a partial refund in the event of re-export of a car. They would also like to see the BIK rate on cars reduced from the top rate of 30% to 20%.
IBEC would like to see an increase in the limits on capital that can be raised under BES; a tax deduction for intellectual property; an extension of the short life asset capital allowance regime more generally; ability to calculate preliminary tax on a group basis rather than company by company; improved tax relief on the acquisition of know-how; and the extension of the 12? per cent rate to mining. They also seek a reduction in excise taxes on alcohol.

The Small Firms Association call for a review of the incremental spending requirement in the research and development credit scheme. It is surprising that there is not more support for this, since the incremental spending requirement has all but killed this scheme.
The Banks would like the first preliminary tax payment, which has to be made a month before the company’s year end, to be based on prior year taxes since the current year liability is not known. This suggestion is so sensible that there must be doubts as to whether the present requirement is even constitutional by reason of sheer silliness. They also call for the abolition of dividend encashment tax, a minor tax which places a significant compliance burden on banks.

Crystal ball
What will the Minister do? It seems fairly certain that he will increase the standard tax band and increase tax credits. As to the rest of the advice he has received, only time will tell. It is to be hoped however that he pays little attention to the submissions by CORI which, if adopted would surely ensure that the poor will always be with us. They call for an increase in corporation tax rates to 17? per cent, an increase in the rate of capital gains tax (unspecified), an increase in the tax rate on DIRT, introduction of Eco taxes, an increase in the bank levies, the introduction of Tobin taxes, increased wealth taxes, and a land tax. It brings back memories of the 1980s with its unemployment queues and filled emigration boats.

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