The Budget 2012 (Ireland)

The Two Day Budget 2012 by Annette J Dunlea

Published In The Carrigdhoun Newspaper 17th Dec 2011 p.19

The Taoiseach Enda Kenny addressed the nation on Sunday night ahead of the announcement of more austerity measures in Budget 2012.He began: “Tonight I’m taking the opportunity to speak to you directly on the challenge we face as a community, as an economy, and as a country. I know this is an exceptional event.But we live in exceptional times. And we face an exceptional challenge.It is important that you know the truth of the scale of that challenge – and how we are addressing it”. He adds that the challenge is to restore our economy. To create the environment to sustain jobs, and to look after the most vulnerable people in our society. He says that at the end of last year, our economy was in deep crisis and we remain in crisis today. I would love to tell you tonight that our economic problems are solved, that the worst is over but it is are not rsponsible for this.He sais that the current Irish Government is determined that now; the necessary decisions and changes are made to ensure that this is never allowed to happen again. Right now, our most important responsibility is to do what must be done to get our economy back on its feet.
He said that right now, the State is spending €16 billion a year more than it is taking in.This problem will not be fixed unless we take action to bridge this gap.we must he said,in this Budget we must cut public spending by €2.2 billion and raise €1.6 billion in extra taxes. Mr.Kenny noted that the government are shutting down dysfunctional banks and that they have recapitalised the remaining ones at a lower cost than expected, by imposing losses on some bondholders. He reminds us that they have implemented a jobs initiative that cut taxes on tourism and employment, and that created over 20,000 new job and training placements. He tells us that he secured a lower rate of interest on the country’s EU/IMf loans.The Iirsh goveernment have met our commitments to the EU and IMF in full, and on time. This has been acknowledged worldwide, and has helped restore some international confidence in Ireland, he notes.He states that we have begun to stabilise our finances. The improved confidence has helped strengthen exports,a key driver of future success. But he warns have a long way to go. This week, we will introduce a budget that will build on those first steps towards recovery. This budget will be tough for it has to be because it will move us towards a manageable deficit of 3% of our GDP by 2015. He informs us that the main purpose of this budget, and of our four year strategy, is the creation of jobs for our people.But, by 2015, he wants to see our deficit under control and real growth in jobs.
Edna states the budget will include, among other initiatives, a new system of loan guarantees will enable banks to resume lending and a new micro finance scheme which will help people to start their own businesses. This will allow small firms to take on one or even two employees:new jobs to create new incomes, to assist the economy on the path to growth and confidence. To make sure we keep as many jobs as we can, to make sure you get to bring home as much as you can, and to make sure you know where you stand with your wages. To give you some certainty for the year ahead, we’re leaving income tax untouched. Instead, we will raise the 1.6 billion of extra taxes that Ireland needs mainly through indirect taxes, difficult though these will be. The highest priority is to create more jobs, but we will also do all we can to protect the most vulnerable in our communities – our children, the sick, and the elderly, he states. Difficult choices are never easy, but we will invest in crucial projects like the National Children’s Hospital, school buildings and health centres. Before asking families to make sacrifices, we also insisted on sacrifices from those at the top: We cut the pay and removed state cars and Garda drivers for Ministers. In the last few weeks Mr Kenny has informed former Taoisigh that entitlements, like free mobile phones and staff allowances are being withdrawn. The pay and pensions of senior public servants have been cut. This week’s budget will go further, he warns.50 quangos will be abolished or merged, and the public sector will be downsized by 23,000 people by 2015.Next year, we will hold a referendum to abolish the Seanad.He syas the Irish government will reform how we run the country so that we never return to the practices that drove our economy into freefall:reckless spending, weak oversight of banks and reliance on a property boom for tax revenues.
On the Eurozone crisis he states that Ireland supports stronger economic governance throughout Europe, and particularly in the Eurozone. In the ongoing negotiations in Europe, he will work to achieve a positive outcome for Ireland one that ensures and protects our economic security. Firm action will help to restore confidence throughout Europe, and here in Ireland.He wants to be the Taoiseach who retrieves Ireland’s economic sovereignty, and who leads a Government that will help our country succeed.
We need to make a €3.8 billion adjustmentto our government’s in Budget 2012: €2.2 billion expenditure consolidation of which €1.45 billion from current ,€0.75bn from capital expenditure and €1.6 billion revenue consolidation of which around €1 billion new tax measures. Budget 2012 is not just about cuts and increased taxation. The creation of sustainable growth, jobs and protecting the vulnerable is at the heart of Budget 2012. 12.5% Corporation Tax rate unchanged. Income Tax rates, bands and credits remain unchanged. Budget 2012 builds upon the Jobs Initiative and 9% reduced VAT rate for tourism sector remains unchanged. No Change to core social welfare rates, state pension rates, and basic rate of child benefit has been maintained in 2012. Exempt low-paid, part-time and seasonal workers with an annual income of less than €10,036 from the Universal Social Charge. There are a range of high-yielding sector specific measures to support multinational and indigenous companies. There is a €17 billion five year Capital investment programme.A €514 million investment in 2012 reflects the Government’s on-going strong commitment to supporting the enterprise and Research & Development agendas. The Labour Market Activation Fund to deliver 6,500 places for long-term unemployed.
They are to reform Our Public Services.Public Service Numbers will fall by 6,000 in 2012 to 294,000 and there will be pay savings of €400 million. A reduction of 37,500 or 12% of staff over 2008 levels by 2015. The overall cost of paying public servants will have fallen by €3.5 billion, or 20% over the 7 year period from 2008 to 2015. Standard Rate of VAT increased by two percentage points to 23%. €100 household charge introduced to fund vital local services. Carbon Tax increased from €15 to €20 per tonne effective from midnight Budget night on petrol and Diesel and from 1 May 2012 on other fossil fuels excluding solid fuels. This change equates to 1½c increase in cost of a litre of petrol & diesel. Excise on cigarettes up by 25 cents. Motor Tax rates increased. A Fairer tax system was introduced by Increasing Taxes on Wealth.Increase Capital Acquisition Tax, Capital Gains Tax and D.I.R.T. to 30%. Property Relief Surcharge of 5% to apply to large investors. Broadening of PRSI to previously exempted income.
On day One Mr Howlin announcees the Expenditure Estimates in the Dail.He says we need a €3.8 billion fiscal adjustment,€2.2 billion to be saved from spending and €1.4 billion in day-to-day spending cuts,€20 million earmarked for new Labour Market Activation Fund,Public service staff down by 6,000 and by public service pay bill to fall by €400m in 2012.The weekly social welfare payments remained unchanged.Changes to the one-parent family payment will save €20.7m. Child benefit for first and second child unchanged.Cut of six weeks in the cold weather allowance.The Jobseekers’ benefit from now on is to be based on five day week.There are changes to the redundancy and insolvency scheme will reduce the employer rebate from 60% to 15%.The back to School Clothing Allowance abolished for two/three-year-olds.
There are to be €543 million worth of cuts in net savings in the health area.Extra charges are to be placed on private treatment in public hospitals. The Drug Payment Scheme monthly threshold up from €120 to €132.The New measures will reduce the price of drugs.2% cut introudced for disability, mental health and children’s services, this saving €50 million.A Staff ceiling of 103,800 employees to apply to the HSE in 2012. €132.3 million savings ae to be found in education.2% cut in Higher Education funding making a €7 million saving. There is to be an increase of €250 in the third level student contribution.Changes to fee and maintenance supports for new post-graduate students are to be introuduced.Education expenditure will comprise 17% of all current expenditure next year.There are €19.2 million in cuts to trainee and apprenticeship schemes.The Primary school transport charge to be doubled to €100.The government will save €31 million by cutting fuel allowance from 32 weeks to 26.Next year, public service bodies will have to cut overtime payments by 10% and premium payments by 5%.€55 million is to be saved in rent supplement cutbacks.
Reduced allowances and secretarial supports for former Taoisigh are to be included in the saving measures.They reformed Ministerial transport arrangements.The number of Oireachtas Committees have been reduced. More savings of €105m in Dept of Agriculture, Marine, Food, €45m in Dept of Transport, Tourism, Sport, €34m in Environment, Community, Local Govt, €52.9m cut in Overseas Development Aid and €79 million cut in spending for An Garda Síochána.However, the government is committed to €17bn in capital spending over the next five years until 2016.
On day 2 Michael Noonan deliverd the budget in the Dail.He said that the people of Ireland have paid a very high price for this mismanagement of the economy. He notes that personal wealth has been destroyed, thousands of people are sinking into poverty, emigration has returned and unemployment is far too high. He said that the task of this Government is to regain control over Ireland’s fiscal and economic policies, to grow the economy again and to get people back to work. He acknowledges taht those that have lost their jobs and young people who cannot get jobs have suffered most. The primary purpose of this Budget is to support the creation of jobs in the short term, the medium term and the long term.He says his mandate is to set the economy back on the road to recovery and to get people back to work. He lists the government’s achievements.The current Irish governemnt have restored political stability and have successfully renegotiated many of the conditions in the EU/IMF Programme. We made a commitment in the Programme for Government to maintain the 12.5 per cent rate and we will do so. The Government have successfully protected this rate even under international pressure and given our fiscal state. The Government successfully negotiated a reduction of €10 billion in the interest rate margin that was far bigger than originally offered and made no concession on the Corporate Tax Rate.
There will be no change in Ireland’s 12.5 per cent Corporate Tax Rate. He introduced a new “Special Assignee Relief Programme” and a Foreign Earnings Deduction to further support our export drive by aiding companies seeking to expand into emerging markets. This targeted deduction will apply where an individual spends 60 days a year developing markets for Ireland in Brazil, Russia, India, China and South Africa, the so called BRICS countries. He will be giving details of these and additional measures in the Finance Bill.In addition to the Loan Guarantee Fund and Micro Finance Fund he introduced: that the first €100,000 of R&D expenditure of all companies will be allowed on a volume basis for the purpose of the R&D Tax Credit; the outsourcing arrangements for R&D purposes will be improved in a targeted manner to allow the greater of the existing percentage arrangement or €100,000:companies will have the option to use some portion of the R&D credit to reward key employees who have been involved in the development of R&D; the corporate tax exemption for new start up companies is being extended for the next three years and will be available for companies that commence trading in 2012, 2013 and 2014; and smaller companies will also be able to avail of the planned foreign earnings deduction where they plan to expand their export markets into the BRICS countries.
He is modifying retirement relief from Capital Gains Tax so that it better incentivises the timely transfers of farms and businesses before the current owners reach the age of 66. The approach is in keeping with the policy of my colleague the Minister for Agriculture, Food and the Marine, Simon Coveney T.D., of encouraging timely transfer of farm assets and improving the age profile of farming. Full details of these measures will be in the Finance Bill.
He says that there is a growing acceptance that greater use of the farm partnership model can not only help to increase scale, but can also help to develop the sector’s skill set through attracting more new entrants to the sector. To encourage farm partnership formation, he is introducing an enhanced 50 per cent stock relief for all registered farm partnerships and a 100 per cent stock relief for certain young trained farmers forming such partnerships.Subject to clearance with the European Commission under State Aid rules, these reliefs will be made available until December 2015.Also added to the budget was the creation of a second reduced rate of VAT of 9 per cent and halving the rate of employers’ PRSI on jobs with earnings up to €356 per week in the Jobs Initiative has boosted tourism and stimulated employment. The 9 per cent rate of VAT will also apply to open farms which otherwise would be subject to the standard rate as a result of a European decision.
2013 would be the ‘year of the gathering’ a year long programme of festivals, events and other gatherings designed to encourage the global Irish to visit Ireland in 2013 and to increase tourist numbers by 325,000. A special allocation will be made in the Revised Estimates Volume early in the New Year and it will be launched on St Patrick’s Day. The Stamp Duty rate for commercial property transfers will be reduced from the current top rate of 6 per cent to a flat rate of 2 per cent on all amounts from midnight tonight in respect of all non-residential property, including farmland as well as commercial and industrial buildings. Bringing down the cost of acquiring commercial property will have a positive effect on the property sector and indirectly on jobs in construction and related activities. The current stamp duty arrangements for residential property will continue to apply with 1 per cent on transactions up to and including €1 million and 2 per cent thereafter.He introduced a Capital Gains Tax incentive for property purchased between midnight tonight and the end of 2013. If a property is bought during this period and held for at least seven years, the gain attributable to that seven year holding period will be relieved from Capital Gains Tax.
The Government say they are committed to helping address the particular problems faced by those that bought homes at the height of the property boom between 2004 and 2008 so he increased the rate of mortgage interest relief to 30 per cent for first time buyers who took out their first mortgage in that period. Mortgage interest relief will no longer be available to house purchasers who purchase after the end of 2012 and will be fully abolished from 2018.
For those who wish to buy a home in 2012:first time buyers will get mortgage interest relief at a rate of 25 per cent rather than the 15 per cent proposed by the previous Government; and non-first time buyers will benefit from relief at 15 per cent instead of the reduced rate of 10 per cent proposed by the last Government.
A property relief surcharge of 5 per cent will be imposed on investors with an annual gross income over €100,000. This will apply on the amount of income sheltered by property reliefs in a given year.Reliefs in Section 23 type investments will not be terminated or otherwise restricted for investors with an annual gross income under €100,000 as these are at the greatest risk of insolvency.Investors in Accelerated Capital Allowance schemes will no longer be able to use any capital allowance beyond the tax life of the particular scheme where that tax life ends after 1 January 2015. Where the tax life of a scheme has ended before 1 January 2015, no carry forward of allowances into 2015 will be allowed. The delayed implementation of this measure gives individuals time to adjust. Full details will be in the Finance Bill.
Since taking office, the Government has completed a large scale restructuring of the sector, in which the two largest institutions will function as universal pillar banks. The more problematic institutions have been ring-fenced into a single entityThese restructured banks must now serve the different sectors of the economy. We have set the two pillar banks ambitious SME lending targets of €3 billion each this year, €3.5 billion each next year and €4 billion each in 2013. By making this credit available, we are supporting increased activity in a key sector for job creation. The banks must also make mortgage credit available to allow people to avail of the mortgage interest relief incentives as annouced. Estimates the General Government Deficit for this year will be 10.1 per cent of GDP. This is less than the 10.6 per cent required by the EU/IMF Programme.The General Government Deficit target for 2012 is 8.6 per cent of GDP. No matter what happens in the wider eurozone, Ireland needs to restore sustainability to its public finances. If the eurozone crisis recedes, we are amongst the best placed to grow quickly, as evidenced by the EU Commission’s growth forecasts. If the eurozone crisis persists, it is equally important for the State to reduce our dependence on borrowing.
The Programme for Government states that there will be no increase in income tax. This is the key issue for this Budget. He says there will be no increase in income taxes in this Budget – no increases in rates, no narrowing of bands and no reductions in personal tax credits. Wages and salaries in January will be no less than wages and salaries in December, so people will continue to have discretion on how they spend their income.There are five main sources of taxes – Corporation Tax, Income Tax, VAT, Excise and Capital Taxes.The bulk of the adjustment being made in this Budget will be through increases in VAT and in capital taxes.The majority of revenue adjustments to date have been achieved through increases in direct taxation. The marginal rate of taxation on income is now 52 per cent for PAYE workers and 55 per cent for the self-employed. The OECD have concluded that Ireland has the most progressive tax system of the EU members of its organization and Revenue records show that the top 5 per cent of income earners pay 44 per cent of income tax. When the marginal rates of tax are very high jobs are lost. Indirect taxes have a less adverse impact on employment.
The government have reviewed the impact of the Universal Social Charge and from now part-time and seasonal workers in labour intensive areas like the hospitality sector and in farming. From 1 January 2012, the exemption level will be raised from €4,004 to €10,036. This will mean that taxpayers will be able to earn up to that level without incurring the USC. This measure benefits nearly 330,000 people and will assist people to move into the labour market.The Revenue Commissioners will collect the USC on a cumulative basis next year, thereby reducing the risks of the over or underpayment of the USC, and this will offset the costs of the very positive change made for the lower paid.The previous Government agreed with the IMF and the European authorities to increase VAT by 2 per cent: 1 per cent in 2013 and 1 per cent in 2014. We are bringing these increases forward to 2012. During the lifetime of this Government, we will not increase the standard rate of VAT beyond the 23 per cent being announced today.
New measures include:increasing the current rate of Capital Acquisitions Tax from 25 per cent to 30 per cent after today; increasing Capital Gains Tax from 25 per cent to 30 per cent after today; reducing the Group A tax-free threshold for Capital Acquisitions Tax from €332,084 to €250,000; increasing DIRT from 27 per cent to 30 per cent;broadening the base for PRSI through removal of the remaining 50 per cent employer PRSI relief on employee pensions; further broadening of the base for PRSI to cover rental, investment and other forms of income from 2013; increasing the rate of notional distribution on the highest value Approved Retirement Funds or (ARFs) and similar products to 6 per cent; increasing the rate of tax on the transfer of an ARF on death to a child over 21 from 20 per cent to 30 per cent; abolishing the “citizenship” condition for payment of the Domicile Levy so as to ensure that “tax exiles” cannot avoid it by renouncing their citizenship. As a consequence of the measures above, the rate of tax applying to capital, interest and earnings, through the high earners’ restriction, are all aligned at 30 per cent.There is to be an increase on the Carbon Tax on fossil fuels introduced at €15 per tonne to €20 per tonne. A measure that will benefit businesses is a reduction in the VAT rate on district heating from 21 per cent to 13.5 per cent.There is to be a Household Charge of €100 per dwelling.Removal of the existing tax exemption for the first 36 days of Illness Benefit and Occupational Injury Benefit so that this incentive to absenteeism is removed. Excise Duty on a packet of 20 cigarettes is being increased by 25 cents Dec 7th.This Budget changes the economic strategy of the previous Government to put a much greater focus on growth and employment, says Michael Noonan. It balances the need to restore confidence in Ireland’s fiscal position with the key objective of supporting economic growth that delivers jobs.All changes will be published in The Finance Bill.
The End


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