Today’s Budget was unprecedented in many respects, with huge amounts committed on the spending side (€17bn) and much less in terms of tax measures (€270m).
Unlike previous Budgets, the focus was not on how much an individual would be better or worse off post Budget, but rather on protecting jobs. The clear emphasis was on capital expenditure, supporting people and supporting viable businesses through COVID.
The extension of the wage subsidy scheme through to the end of 2021 will be very welcome. Absent that there was a fear that consumer spending may have taken a significant hit when these subsidies tapered off.
The supports for sectors currently suffering from the impact of Level 3 restrictions, specifically accommodation, food and the arts, will also be welcomed. This scheme will be administered by Revenue and only covers businesses which have seen turnover hit by at least 80% vis a vis 2019. The maximum support available is €5k per week. It is positive that this scheme is not merely a soft loan to businesses but a permanent injection of much needed funds.
In a positive cashflow change for self-employed individuals, income tax liabilities in November can be deferred, including the balance of the 2019 tax liability. Interestingly this was not extended to any companies, although many companies will be in a loss making position in 2020 so will have negligible preliminary tax obligations in November.
The VAT rate cut for the hospitality sector will be welcomed even though the sector is currently struggling with issues on the supply side due to COVID restrictions.
On the negative side, there was no reduction in the CGT rate despite much speculation. A meaningful reduction in the CGT rate would have stimulated activity and helped put assets to a more productive use. It appears any reduction in the rate was not politically palatable, which in our view represents a missed opportunity. Ireland’s high rate is currently an outlier in Europe.
The figures in this Budget are staggering, with the Budget deficit expected to be €20bn in 2020 and a similar number in 2021. At some point the additional debt will need to be repaid, likely over a long number of years once the recovery starts, not expected to be before 2022. Large corporation tax surpluses have helped prop up the economy in the past; however global tax changes mean that our corporation tax receipts are likely to come under pressure in future years, which will make future Budgets more challenging.
Overall, the Budget is likely to be welcomed by businesses, with significant money being pumped into the economy. While new tax measures are not a key element of this Budget, there will be some disappointment that there was no reduction in the CGT rate.