Budget 2023: key measures

The Irish government presented its Budget with the uncertainty of Brexit and the Covid 19 pandemic behind it but facing choppy economic waters arising from rising energy costs, the introduction of climate measures, cost-of-living inflation and interest rates rising beyond a level not seen for many years.

As Michael McGrath, Minister for Public Expenditure and Reform, noted:  'Once again, we stand to deliver a Budget against an extraordinary backdrop of uncertainty and challenge.’

Despite a near record spend of €11bn, the government continues to run a budget surplus – one of the few administrations in Europe likely to do so. There is a worry that over-dependence on corporation tax receipts from a small number of corporations makes the commitment to maintain some of the programmes less secure, and just over €4bn of the measures are temporary.

The Budget was essentially a response to the cost-of-living and energy crises rather than a radical shake up of tax matters, with a 2:1 cost ratio of social and business supports to tax cuts.

Cost-of-living crisis

The government has implemented measures to address the cost-of-living crisis. These include:

• increasing the 20% standard-rate band to €40,000 and maintaining the top rate of 40%
• increases across a series of tax credits
• extension of the Help To Buy scheme to the end of 2024
• increase the annual limit for non-cash benefits from €500 to €1,000; two vouchers will be granted by an employer to an employee in a single year
• abolition of all inpatient hospital charges
• provision of GP visit cards to those on or below the median income
• electricity credits for all households totalling €600 will be paid in three instalments of €200, commencing before 31 December 2022.

Energy costs

A new Temporary Business Energy Support Scheme was announced to assist businesses with their energy costs over the winter months where there is more than a 50% increase in the average unit price to qualify.

• The scheme will operate on a self-assessment basis and will be open to businesses that carry on a Case I trade, are tax compliant and have experienced a significant increase in their natural gas and electricity costs.
• It is proposed that the average unit price for the relevant bill period in 2022 will be compared with the average unit price in the corresponding reference period in 2021.
• Once eligible, the support will be calculated on the basis of 40% 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 that a business can claim.
• The scheme needs to be approved by the EU Commission in advance of making payments.

Housing

In response to well-documented concerns around housing, the government introduced measures, including:

• a tax credit of €500 per year for taxpayers paying rent on their principle private residence and who do not get any other housing support; this will apply in 2022 and subsequent years
• the relief for pre-letting expenses for landlords previously capped at €5,000 per premises increases to €10,000, while the period that a premises must be vacant reduces from 12 months to six months
• a new vacant homes tax, which will apply to residential properties that are occupied for less than 30 days in a 12-month period, will be charged at a rate equal to three times the property’s existing basic Local Property Tax rate. There will be certain exemptions for genuine reasons
• funding to support new tenancies, new housing and home energy upgrades.

International aspects

A number of measures addressed in the Budget have an impact from an international perspective, including the following:

• Foreign Earnings Deduction has been extended to 31 December 2025. This is an attractive measure that encourages Irish executives to travel on business abroad.
• The Special Assignee Relief Programme has been extended to 31 December 2025. Although the minimum income limit for new entrants increases to €100,000, this relief has the benefit of attracting experienced executives to Ireland. Non-domiciled individuals working in Ireland can also claim Irish CAT relief on gifts/inheritances received while resident in Ireland where the relevant conditions are met.
• Certain changes are to be introduced in relation to payment  provisions for R&D tax credit; this is of interest to multinational companies operating in Ireland.

Other measures

The following reliefs have been extended as follows:

• The Knowledge Development Box is extended for a further four years.
• The Film Corporation Tax Credit is being extended to 31 December 2028.
• The Key Employee Engagement Programme (KEEP) has been extended to 31 December 2025. This now facilitates the buyback of KEEP shares by the issuing company and increasing the company limit to €6m.
• The Young Trained Farmer [stamp duty] relief, Farm Consolidation [stamp duty] relief and Farm Restructuring [capital gains tax] relief are to be extended to 31 December 2025.
• There are changes to the VAT rate for tourism and hospitality and certain other products.
• The rate per tonne of carbon dioxide emitted for petrol and diesel will go up from €41 to €48.50 from 12 October.
• There were no changes in the income tax, corporation tax, capital gains tax or capital acquisitions tax rates.

Avoid CT over-reliance

The Budget confirmed an effective corporation tax rate of 15% will apply to companies with turnover of more than €750m; otherwise, the rate remains at 12.5%.

Paschal Donohoe, Minister for Finance, warned of the need to be mindful of over-reliance on corporation tax, noting that around one in every eight euro collected in tax comes from a 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,' he said.

‘My department estimates that “excess” corporation tax receipts – that is the amount which may be more vulnerable to a shock – could amount to €8bn-€10bn this year.’

What next?

As with all Budget statements, the devil is in the detail, and the impact of some measures will not be clear until the Finance Act is published in October.

The overall tax landscape has remained relatively unchanged for tax practitioners for now but it is not inconceivable that, like the UK, the Irish government may have to revisit its Budget to respond to changing circumstances. There may be more to come!