Yesterday’s budget brought with it the usual share of comment and the analysis will soon follow, however, here are our initial thoughts on the budget and the likely impacts for the SME community.
For SMEs the most significant short term considerations are in the area of payroll changes to be adopted and also the improvements in disposable income among consumers linked to tax and social welfare changes.
Let’s start with payroll considerations; these will probably have the most immediate impact in terms of changes to your finance processes and calculations.
USC: The floor on USC deductions commencing has been increased from ca. €10k p.a. to €12k p.a. The existing 2% and 4% applicable rates have been trimmed by 0.5% to 1.5% and 3.5% respectively. A new upper rate of 8% has been introduced on earnings in excess of €70k p.a. and finally a top rate of 11% has been introduced on self-employed earnings over €100k p.a.
PAYE: The lower band has been widened to include earnings up to €33,800 (an increase of €1,000) and there has been a reduction in the higher rate of income tax from 41% to 40%.
It’s also worth bearing in mind that whilst these changes come into effect on January 1st the government have committed to a further two years of personal tax reform which will likely have an impact on payroll level deductions throughout the next two years.
The second short term consideration is this. Disposable incomes will rise, as a result of yesterday’s budget, across the board. The improvement in disposable incomes will come from the changes to USC and PAYE regimes outlined above, the modest improvements in social welfare with children’s allowance increasing by €5 per child per month this year (and possibly next) and the payment of a 25% “Christmas bonus” for social welfare recipients this coming Christmas. These increases in disposable income coupled with record low interest rates serving as a disincentive to savings are likely to increase your customers’ spending power.
The medium term implications of the measures introduced in yesterday’s budget are also significant for the SME community. Ireland’s corporate tax regime has been under significant scrutiny from externally, particularly in the last number of months. The government not only re-affirmed that the 12.5% corporation tax rate was immovable but also introduced further measures to bolster the attractiveness of the economy for foreign direct investment from multinationals. This includes a commitment to the creation of a “knowledge box” that will allow multinationals to house patents and IP rights in Ireland at a preferable rate – an approach that has been working extremely well for the UK government in recent times.
Whilst those measures are aimed at attracting large multinationals into the economy it is worth noting that the presence of FDI on a large scale is good for SMEs also,
1. It creates confidence in the economy from the investment community.
2. Multinationals have a need for local services and suppliers driving local business growth.
3. High levels of employment created by these businesses not only drive employment in the economy improving the overall tax take, they also create greater levels of economic activity which will have a positive impact on indirect taxation such as VAT.
In terms of SME opportunities, a number of measures introduced yesterday should have a positive impact namely, commitment to the R&D tax credit scheme which will support knowledge and IP creation financially, the retention of the break on corporation tax for the first 3 years of operation and further financial support for Enterprise Ireland for R&D supports.
Lastly, by resisting the urge to hit the old reliables of diesel and petrol with an excise increase there will also be no further incremental increase in that area for businesses as a cost of business.
For certain industry sectors there were wide ranging positive impacts from yesterday’s budget announcement.
Hospitality: the retention of the 9% VAT rate (on the basis that the benefits are shared with the customer) will enable the hospitality industry to continue to drive their competitiveness. Depending on who you listen to, the lower rate has created somewhere between 23,000 (minister’s figures) and 34,000 (RAI figures) additional jobs since 2011 in the sector. The lack of increases on excise duties on alcohol should allow the industry to retain competitiveness in an area of concern for them.
Transport and Logistics: No increases in excise duty on petrol and diesel provide for lesser increases in operating costs.
Agriculture: a large package of tax measures announced yesterday has the aim of driving opportunity in that industry support ca. 300k jobs. The measures introduced are touted as having a value of €1bn and will assure better use of land and incentives to drive generational change and transfers between family members. These measures will enable the agri sector to better position itself from a financial management perspective and prepare for the opportunities aligned to the abolition of milk quotas in the coming years.
Construction: there were a large number of measures announced yesterday that will be extremely beneficial for the construction sector. Some of the headline developments as follows:
1. Government commitment to an investment of €2.2bn in social housing over the next three years. This will act as a massive and predictable activity driver
2. Abolition of windfall tax of 80% and introduction of consultation on imposition of punitive measures to drive usage of zoned and serviced sites as a means of freeing up development sites.
3. Extension of home renovation scheme, which has been hugely successful in driving activity since its introduction last year, to enable the eligibility of rented accommodation whereby the landlord is a PAYE worker.
4. DIRT refunds for first time buyers where savings are used to fund deposits which should help in terms of growing purchase activity.
5. Expansion of city living scheme to allow for the full cost of works in six urban centres to be offset against PAYE for a period of 10 years which should driver greater activity in that sector.
Overall, following a number of years of punitive budgets and their resulting impacts on consumer spending capacity, Budget 2015 represents a turning point for the Irish economy. Its has the potential to drive short and medium term activity at a consumer and business level whilst retaining and introducing structures that will facilitate further inbound investment and growth creation opportunities in the economy.
If growth forecasts are achieved we could be in for a very positive number of years