This moment, this time, is the most successful the Irish economy has ever been.
Two Ministers stood up in the Dail, and on the eve of a general election at that, with an unbelievable bounty to distribute. The total Government surplus for the year is about what total Government spending was in 2000. That is not so long ago. The Central Statistics Office estimate that inflation over the same period has been less than 70%.
These figures are mad when you think about it. And even more so when you consider the effects of the financial crisis in the middle of that period. These are not normal times.
Another statistic is useful to consider, I think. The Minister stated in his speech that Government debt is expected to stand at 69% of national income by the end of this year. When the EU Commission started its investigation into State Aid to Apple in 2014, this stood at about 140%. Ten years ago there may very well have been pressure on Ireland to use these surplus funds to service the national debt. Now there is no such pressure. They are free to invest!
Liam Lynch
Partner
KPMG in Ireland
How do we invest what we have now to achieve a vision for sustainable wealth for all in the longer term?
Corporation Tax revenues from multi-national organisations have been likened to an oil bonanza. The natural question is what happens when it runs out. The better question is how do we invest what we have now to achieve a vision for sustainable wealth for all in the longer term, and how do we do this without a headlong rush to invest primarily in ever bigger government.
This means that the focus must shift to that longer term strategic vision, and well beyond what is politically expedient at this time in the electoral cycle. It seems that the Ministers have tried to thread this balance, to some degree at least, with a greater focus on the two areas that will secure our future prosperity: building world class infrastructure and encouraging the development of indigenous Irish businesses.
I will leave it to far more qualified people than I to comment on the infrastructure proposals. On domestic Irish business, this budget does take action.
Changes to the capital gains tax retirement relief for transfers of family businesses that were due to take effect from 1 January have been significantly overhauled. This overhaul was essential to facilitate timely and orderly succession planning for family-owned businesses that found themselves up against a significant and artificial cliff edge. The proposed 12-year holding period to maintain the relief feels a little long, but we wait to see what details are in the Finance Bill to deal with unexpected circumstances.
There is a growing cadre of Irish individuals with some cash who prefer to invest a portion of this in small and developing Irish businesses. Often such investment is at such an early stage that the investors are referred to as “angels”. As this ecosystem for early-stage funding grows, it is worthy of increasing support and extending the angel investor capital gains tax scheme to lifetime gains of €10m is a step in the right direction.
However, the limit on the qualifying gain on any particular shareholding to at most 100% means that the relief remains limited given the number of investments most angels need to make (and lose) for the one success that will pay for all. Generally, the conditions for qualifying for the relief remain so complex it feels like something has broken down between the policy intent and implementation.
In the same space, there is more encouragement for new start-ups and growing companies, with the Employment Investment Incentive (EII) and the Start-Up Relief for Entrepreneurs (SURE) both being improved. Enhancements to the R&D Tax Credit will also be of particular benefit to early-stage and developing businesses, where the cash flow cost of investing in the future is most keenly felt.
Other changes in the cost of doing business in Ireland feel more limited overall, although it will take a while for all of the measures to be evaluated in full. In particular, the Energy Subsidy Scheme for retail and hospitality businesses will need to be evaluated in the context of other cost increases being faced by those sectors. On the horizon will be pension auto-enrolment from September 2025, which is a necessary step in modernising how we fund pensions in Ireland but will constitute a cost for businesses.
Overall, indigenous businesses are one of the key pillars on which our long-term prosperity in being built. Post-election, the strategy for this critical pillar will need an even greater focus and a clear progression from policy intent to efficient implementation.
