Carbon Tax
The rate per tonne of carbon dioxide emitted for petrol and diesel will go up from €41 to €48.50 from 12 October as per the trajectory set out in the Finance Act 2020.
This will mean that there will be an increase of just over two cent VAT inclusive per litre of petrol and diesel.
However, I also recognise the sharp cost of living challenges currently being faced by society, so the government is therefore proposing to offset this carbon tax increase with a reduction to zero of the National Oil Reserves Agency (NORA) levy.
The NORA levy which is collected at a rate of 2 cent per litre (VAT exclusive) will help offset the carbon tax increase which means that the price at the pump will not go up as a result of taxes or levies.
Agricultural Reliefs
We know the challenges farming communities face as they deal with rising input costs while moving towards a sustainable future.
A number of important Agricultural Reliefs are due to expire at the end of 2022. These reliefs provide important supports to our young farmers and the farming sector generally.
I will extend five agricultural tax reliefs expiring this year: the Young Trained Farmer and Farm Consolidation Stamp Duty Reliefs, the Farm Restructuring CGT relief, and the Young Trained Farmer and Registered Farm Partnership Stock Reliefs.
The duration of these extensions are dependent on the outcome of negotiations at a European Level on the Agricultural Block Exemption Regulation.
Slurry Scheme
I am making provision in the Budget for a time-limited scheme of accelerated capital allowances for farmers for the construction of modern slurry storage facilities; this will assist the sector in further adopting environmentally positive farming practices.
Business
I am today announcing specific measures to support business and enterprises in Ireland through these exceptionally challenging times.
Small and medium businesses are the backbone of our domestic economy and support thousands of jobs. The SME sector requires a range of supports as it deals with the immediate impact of the current crisis.
Temporary Business Energy Support Scheme
I am introducing a Temporary Business Energy Support Scheme to assist businesses with their energy cost over the winter months.
The scheme will be open to businesses that carry on a Case 1 trade, are tax compliant and have experienced a significant increase in their natural gas and electricity costs.
The scheme will be administered by the Revenue Commissioners and will operate on a self-assessment basis. Businesses will be required to register for the scheme and to make claims within the required time limits.
It is proposed that the scheme will operate by comparing the average unit price for the relevant bill period in 2022 with the average unit price in the corresponding reference period in 2021.
If the increase in average unit price is more than 50 per cent then the threshold would be passed and the business would be eligible for support under the scheme. Once eligibility criteria are met the support will be calculated on the basis of 40 per cent of the amount of the increase in the bill amount.
A monthly cap of €10,000 per trade will apply and an overall cap will apply on the total amount which a business can claim.
The scheme is being designed to be compliant with the EU State Aid Temporary Crisis Framework and will need to be approved by the EU Commission in the advance of making payments.
This is a significant intervention by the government in the Irish economy to protect employment. This support scheme forms a large part of our once off package. We must weaken the ability of a shock to income becoming a loss of jobs. This new policy will help employers with their rising bills, and help to save their businesses.
Small Benefit Exemption
The Small Benefit Exemption allows an employer to provide limited non-cash benefits or rewards to their workers without the payment of income tax, PRSI and USC.
I am increasing the annual limit provided for in the exemption from €500 to €1,000 and will also permit two vouchers to be granted by an employer in a single year under this exemption.
I propose that these changes will apply in the current tax year, so that additional benefits can be paid this year if an employer wishes to do so.
Excise - Cider
Deputies should also note that I will be following through on my commitment from last year in relation to the production of cider by implementing the option in the revised EU Alcohol Directive to grant up to 50 per cent excise relief to independent small producers of cider and pear cider also known as ‘perry’.
Excise - Special Exemption Application
The government is committed to supporting the night time economy – not just our hospitality sector, but also the many musicians, venues, event operators and organisers who are integral to creating a vibrant cultural life.
In line with a commitment in the Programme for Government to modernise our licensing laws, I am today announcing that we will halve the cost of applying for a Special Exemption Order, which late night venues require in order to open. This will reduce the excise fees for a special exemption application order from €110 to €55.
This aligns with a number measures we have taken to support the night time economy, and ahead of longer term reforms which will be announced when the General Scheme of the Sale of Alcohol Bill is published within weeks.
A Financial Resolution will be brought in tonight to enact this measure.
VAT - Hospitality
As I have previously stated, the 9 per cent VAT rate which is currently in place to support the tourism and hospitality sectors will continue until 28 February 2023.
VAT - Newspapers
The government is aware of the critical role that newspapers play in our society, from reporting on local communities to holding those in power to account. For that reason I will be reducing the VAT on newspapers from 9 per cent to zero from 1 January 2023.
This is in line with the government’s commitment to support an independent press and the Future of Media Commission’s recommendation on this matter.
VAT - Health Products
Many Deputies in this house have contacted me seeking the removal of VAT on defibrillators and were told that it was not permitted under the EU VAT Directive. However, after much negotiation it is now possible for member states to apply a zero rate and I am happy to announce that I will apply this rate to these life-saving devices from 1 January.
I will also apply a zero rate of VAT to hormone replacement and nicotine replacement therapies, as well as the small number of period products that are currently subject to a 9 per cent rate.
Tax Credits
Turning to the various business related tax credits:
- I am extending the Knowledge Development Box - which encourages companies to develop Intellectual Property in Ireland - for a further four years
- I am also providing for amendments to the payable element of the Research & Development tax credit, to ensure it aligns with the new international definitions
- in recognition of the long production cycle for audio-visual productions, I am legislating to extend the film corporation tax credit beyond the current end date of 2024, until December 2028
- in recent years, Ireland has emerged as a location of choice for new and innovative multimedia industries, such as animation and digital gaming. To continue building on these successes, I have asked officials in my department to explore the opportunities for Ireland in the ‘unscripted production sector’ to encourage international players to locate here and help bolster and sustain employment in indigenous businesses
- as well as extending the Key Employee Engagement Programme (KEEP) until the end of 2025, and commencing some key 2019 provisions following European Commission approval, I propose to make further important changes to this measure. Collectively, these steps represent real progress which can be further built upon in 2023
- I am also extending the Special Assignee Relief Programme until 2025, but increasing qualifying income to €100,000
Windfall Energy Tax
Turning to revenue raising measures; much work is underway in the EU on capturing the windfall gains of energy companies. It is not fair for companies to earn excess profits from the current volatility in the market
Ireland aims to be part of this EU-wide response to high energy prices. If this is not possible, this government will bring forward our own measures.
Extension of Bank Levy
Since its introduction in 2013, the bank levy has been extended on several occasions and currently applies to the end of this year. The current annual yield of this levy is approximately €87 million per annum. I am therefore extending it for a further year.
Following the publication of the report of the Retail Banking Review, I will consider the long-term future of this levy.
Tobacco
To support public health policy to reduce smoking in Irish society, I am increasing excise duty on a pack of 20 cigarettes by 50 cents, with a pro-rata increase on other tobacco products.
Commission on Taxation and Welfare
A Ceann Comhairle, I would now like to take the opportunity to look past the immediate issues facing us today and to consider some issues which we will face over the medium to longer-term.
I very much welcome the recent publication of the report of the Commission on Taxation and Welfare, and thank members for their hard work.
The Commission considered how the overall balance of taxation might shift in order to sustainably fund public services over the longer-term. Its recommendations are clearly not intended to be implemented immediately but rather provide a clear direction of travel for this and future governments around how the sustainability of the taxation and welfare systems may be improved.
The report has already fed into a number of policy actions being announced today.
As referenced earlier I have requested that the department consider the proposals related to a range of recommendations across PRSI, USC and income tax over the coming months with a view to developing a medium-term roadmap for personal taxation reform to address these and other related issues.
In the area of property, I welcome the Commission’s proposals on changes to the Local Property Tax and a Site Value Tax. These longer-term reforms are wide-ranging and require careful consideration and consultation across Government. I am also committing to commencing a review of the REIT and IREF regimes. Institutional investment has played a key role in the provision of housing in recent years. This review will consider those structures and how best they can continue to support housing policy objectives.
In addition, I also intend to commence a review of the use of Section 110 regimes and to establish a working group to consider the taxation of funds, life assurance policies and other investment products.
Another area which the Commission considered in detail is corporation tax.
Corporation Tax
The pace of international tax reform has remained intense over the past 12 months. In October last year Ireland, along with almost 140 other countries, signed up to the two-pillar solution to address the tax challenges arising from digitalisation.
Ireland has committed to the two-pillar agreement and has engaged intensively at OECD and EU level to follow through on this commitment. The agreement is in line with Ireland’s long-standing position that co-ordinated multi-lateral action is the best approach to ensuring the international tax system keeps pace with changes in how business today is conducted internationally.
Work is continuing to develop the multiple new elements required to give effect to the Pillar Two minimum effective tax rate. This work will continue over the coming months, in conjunction with serious consideration of options for a move towards a territorial corporation tax system.
Needless to say, Ireland’s corporation tax regime is a core element of our economic policy mix and a longstanding anchor of our offering to attract FDI.
In addition to our 12.5 per cent headline tax rate we will also ensure that we continue to play to our traditional strengths such as a forward-looking business environment and an educated and dynamic workforce.
However, as noted earlier, we need to be mindful of our reliance on corporation tax. My department has undertaken significant work on these vulnerabilities, showing that approximately one in every eight euro collected by the State in tax comes from the corporation tax payments of a very small number of firms. At the same time, our income tax system is heavily reliant on a relatively small number of employees; just 500,000 workers and 10 multinational companies account for over one third of our total tax revenue.
My department estimates that ‘excess’ corporation tax receipts - that is the amount which may be more vulnerable to a shock - could amount to €8-10 billion this year.
While these receipts are extremely welcome, they cannot be depended upon to fund permanent expenditure. To do so, would be to repeat the mistakes of the years leading up to the Global Financial Crisis.
It is therefore imperative that we treat these ‘excess’ receipts differently:
- firstly, by identifying them as my department has done through the recent ‘De-risking the Public Finances’ paper
- secondly, to provide a clearer picture of the underlying health of the public finances my department will now employ a new metric – GGB star – to monitor the public finances while excluding any “excess” receipts. For instance, GGB star for this year is currently forecast at a deficit of €8 billion compared to the headline surplus of €1 billion
- thirdly, and more importantly, I intend to start replenishing the National Reserve Fund with some of these excess receipts to build up our economic resilience
National Reserve Fund
Following so soon after Brexit and COVID, it is a major achievement for our country to be in a position to put additional resources aside in order to prepare for future challenges, and to run a surplus.
And let me be clear:
- firstly, there are the major challenges which we know are coming, and which we know will be very costly for future generations. These include an ageing population, the digital transition, and climate change
- secondly, as noted earlier, challenges which were largely unforeseen, are becoming increasingly frequent, and increasingly impactful
- It is therefore imperative that we prepare our public finances appropriately.
- This year I will be directing €2 billion into the National Reserve Fund, and €4 billion in 2023.
- These contributions effectively mean that we will have:
- 'banked’ a large share of the additional corporate tax revenues
- ensured that they do not fund permanent expenditure, and
- supplied the Exchequer with additional firepower to respond to challenges over the coming years
I will be introducing the necessary Dáil Resolution later this evening in order to give effect to the transfers to the fund for this year and next.
