Following Budget 2023, Liam Lynch says that while much of our economic development depends on global events, we must focus on the things that we can control and fix.
There is a quote, attributed to an old Russian, which is appropriate for these times and encapsulates the context for this week’s Budget: “There are decades where nothing happens, and there are weeks where decades happen.”
For a while now we have been faced with week after week of decades. Indeed, in the last number of years we have moved from the Great Recession through Brexit on into a global pandemic and now to war in Europe. The complexity of dealing with the newest crisis before we have adequately mopped up the last one weighed on the shoulders of the two Ministers as they spoke in the Dáil on Tuesday. Their response has been a truly extraordinary budget for extraordinary times, but still measured and focused in approach.
Telling the full story
It is easy sometimes to look solely at the tax measures or solely at the welfare measures, depending on your own perspective. However, in this Budget it is the cumulation of these measures that tells the full story of how they focus on alleviating pressure from those feeling it most, both individuals and smaller businesses.
All this had to be done just to stand still given the enormous global economic and geopolitical challenges we face. But we don’t and can’t control the tides and our focus must be on the things we can control and the things we can fix.
Some of the most serious constraints on businesses involve people, or more precisely finding people. This is true in so many businesses right now where just finding the people is hard. This leads to wage inflation that feeds through to more general price inflation. At the same time the serious competition for talent that exists at a global scale continues unabated following the pandemic. In this context, the adjustments to SARP and KEEP will be of some help, but the main headwinds for people are associated with housing and general living infrastructure.
The Budget has introduced additional supports for those trying to afford accommodation, and some moves on helping the supply. However, the reality remains that the overwhelming focus must be on the supply of suitable living accommodation in the right places. No doubt the vacant house levy will free up some supply, and it will be interesting to understand where the balance of that supply will be located, but we are growing too fast as a country for us not to use the tax system aggressively to incentivise the building of new homes and new communities. Ideas such as those proposed in our pre-Budget submission of a zero VAT rate on new housing for five years and taxing professional landlords as a normal trade (with the associated tax deductions) would start to move the dial.
It is often posited that the interests of enterprise and workers are diametrically opposed. This is untrue – rather they form a symbiotic relationship with neither being able to survive without the other. This relationship is clearly demonstrated in the housing issue, with both deeply vested in finding a sustainable solution.
Employment & corporation tax
On other matters, there are some straws in the wind for businesses and their employees that the Minister has blown to his successor for Budget 2024. The question of a third rate of income tax was raised in a positive light and the possible move to a territorial system of corporation tax would bring our system more into line with international norms. There was less mention of reform of PRSI and the commencement of mandatory pension enrolment, but these matters have been clearly signalled elsewhere and work is now to commence on a medium-term roadmap for reforming personal taxes.
Taxation of savings
One area that got welcome mention is the taxation of savings – specifically funds, life assurance policies and other investment products. The complexity of this area has now reached absurd proportions, with overbearing compliance requirements and the real possibility of individuals paying an effective income tax rate of over 100% on savings income. Indeed, this matter has been discussed in online job forums as a potential disincentive to moving to Ireland. It really risks being an own goal, especially where the focus should be on encouraging the release of the savings of Irish households to be deployed investing in crucial projects at home.
Time for focus
Overall, while there is always more to do, it is important to recognise that this was an extraordinary and measured budget that often met the extraordinary times in which it was framed. The global geopolitical environment has made it so. Now it is time to focus on the things we can control and on the things we can fix.
This article originally appeared in The Irish Independent and is reproduced here with their kind permission.
Get in touch
The pace of change is challenging leaders like never before. If you have any queries on the issues in the article above, please contact Liam Lynch of our Tax team. We'd be delighted to hear from you.
KPMG in Ireland