No sur­prises in the bud­get but op­por­tu­ni­ties were missed

Gov­ern­ment’s 2019 plan pos­i­tive over­all given the fis­cal con­straints but lack of progress in key ar­eas a con­cern

The Irish Times - Business - - WORLD OF WORK -

The ab­sence of sig­nif­i­cant tax cuts from Tues­day’s Bud­get will have come as no sur­prise but the Min­is­ter could have gone fur­ther in some key ar­eas, says PwC Peo­ple and Or­gan­i­sa­tion part­ner Keith Con­naughton.

“It was widely flagged that the room to ma­noeu­vre avail­able to Min­is­ter Dono­hoe was quite tight,” Con­naughton notes. “Of the €3.4 bil­lion the Min­is­ter had to work with, €2.6 bil­lion had al­ready been al­lo­cated, leav­ing just €800 mil­lion to spend. The Gov­ern­ment had al­ready un­der­taken to split two-thirds on pub­lic spend­ing and one-third on tax mea­sures. While cer­tain rev­enue-gen­er­at­ing mea­sures were an­nounced on the day, such as changes to the VAT rate on hos­pi­tal­ity, that still left a rel­a­tively small amount for tax-cut­ting mea­sures, so we shouldn’t be sur­prised that the changes an­nounced were rel­a­tively mod­est.”

He also points out that this was con­sis­tent with state­ments made by the Taoiseach and the Min­is­ter. “They both made it clear that the fo­cus re­mains on de­liv­er­ing a bud­get sur­plus in 2020. That’s what we’ve seen come through in Bud­get 2019.”

‘Some­what of an il­lu­sion’

While Con­naughton wel­comes the ad­just­ments to the in­come tax and USC rates and bands, he ex­plains that these may have limited im­pact.

“Rather than de­liv­er­ing mean­ing­ful tax changes, in re­al­ity they pri­mar­ily keep us in line with in­fla­tion and keep low- and mid­dle-in­come earn­ers out of the higher tax net,” he says. “Peo­ple won’t be sig­nif­i­cantly bet­ter off in real terms. It’s some­what of an il­lu­sion.”

He is pleased, how­ever, that there were no per­sonal tax in­creases, as had been mooted in some quar­ters. “With Brexit on the hori­zon, it is very wel­come that there were no per­sonal tax hikes,” he says. “We need to re­main at­trac­tive in­ter­na­tion­ally and the com­pet­i­tive­ness of Ire­land’s per­sonal tax rates are still a con­cern, par­tic­u­larly in the con­text of at­tract­ing key tal­ent to Ire­land in the post-Brexit land­scape.

“As it stands, our mar­ginal tax rate and the point at which peo­ple com­mence pay­ing this is rel­a­tively high when com­pared to other Euro­pean lo­ca­tions such as the Nether­lands, Ger­many and Lux­em­bourg. This is im­por­tant as we have al­ready seen a num­ber of fi­nan­cial in­sti­tu­tions move op­er­a­tions from Lon­don. The new lo­ca­tion is of­ten a choice be­tween Dublin, Am­s­ter­dam, Frank­furt and Lux­em­bourg.”

SARP

On this point, Con­naughton be­lieves that if we are se­ri­ous about in­creas­ing the level of in­vest­ment here and com­pet­ing with other Euro­pean lo­ca­tions, it would have been wel­come to see some move­ment in re­la­tion to the Spe­cial As­signee Relief Pro­gramme (SARP), which ap­plies to cer­tain in­di­vid­u­als who come from over­seas to work in Ire­land. “It was a bit dis­ap­point­ing that they didn’t look at SARP. The scheme con­tin­ues to pro­vide some lever­age in at­tract­ing peo­ple to these shores and it’s an op­por­tu­nity missed that the Gov­ern­ment hasn’t looked at widen­ing it.”

“One of the prob­lems with SARP is that to qual­ify you have to re­lo­cate with your ex­ist­ing em­ployer,” Con­naughton adds. “This rules out di­rect in­ter­na­tional hires.

“It is a ques­tion of fair­ness and ef­fec­tive­ness and needs to be ad­dressed. The Nether­lands, for ex­am­ple, op­er­ates a sim­i­lar scheme but with­out a re­stric­tion on such in­di­vid­u­als.”

Other than the KEEP scheme, rules around share-based re­mu­ner­a­tion schemes also re­mained un­touched. “We would have liked to see a re­vi­sion of how share-based re­mu­ner­a­tion is treated, par­tic­u­larly in the con­text of in­ter­na­tion­ally mo­bile em­ploy­ees who have re­lo­cated to Ire­land, as some of our rules are sig­nif­i­cantly out of sync with other ju­ris­dic­tions and can cause un­wanted dou­ble tax im­pli­ca­tions. This can act as a dis­in­cen­tive to key tal­ent con­sid­er­ing re­lo­cat­ing to Ire­land. The De­part­ment of Fi­nance re­quested sub­mis­sions on this area by July 2016 as part of a con­sul­ta­tion process but we still await rec­om­men­da­tions from this.”

While not di­rectly re­lated to tax­a­tion, Con­naughton points to the lack of avail­abil­ity of hous­ing and rental prop­er­ties as an­other sig­nif­i­cant road­block to at­tract­ing tal­ent and com­pet­ing against other Euro­pean ju­ris­dic­tions.

“While some pos­i­tive mea­sures were in­tro­duced in the Bud­get, such as an in­crease in the al­low­able de­duc­tion for mort­gage in­ter­est relief, it re­mains to be seen how much of a dif­fer­ence these will make and the strong sense is that more needs to be done. This re­mains an im­por­tant is­sue for For­eign Di­rect In­vest­ment into Ire­land.”

An­other area where progress seems to have stalled is the pro­posed merger of PRSI and USC, which re­mains Gov­ern­ment pol­icy. “We have yet to see any sig­nif­i­cant move­ment on this. The pro­posed merger is not as sim­ple as it might ap­pear. The two taxes are not fun­da­men­tally com­pat­i­ble and sig­nif­i­cant ad­just­ments will have to be made if they are to be com­bined. We had ex­pected to see a re­port in ad­vance of this year’s Bud­get by the Work­ing Group es­tab­lished to ex­am­ine the merger. The ab­sence of any­thing in this re­gard may be­gin to make em­ploy­ers ner­vous. It cer­tainly won’t help our at­trac­tive­ness for FDI if com­pa­nies don’t know how fun­da­men­tal as­pects of the tax sys­tem are go­ing to work in a few years’ time.”

On a more pos­i­tive note, he wel­comes re­cent con­sul­ta­tions on the pen­sion auto-en­rol­ment sys­tem, which should give em­ploy­ers in­creas­ing clar­ity on how the scheme will op­er­ate when it com­mences in 2022.

“As the de­tails be­come clearer, em­ploy­ers need to take steps to as­sess what im­pact the new auto-en­rol­ment sys­tem will have, if any, on their ex­ist­ing ar­range­ments,” he says.

Self-em­ployed

“It was also very pos­i­tive to see fur­ther moves to bring about equal­ity of tax treat­ment for self-em­ployed in­di­vid­u­als,” Con­naughton adds. “This is­sue is go­ing to grow in sig­nif­i­cance with the ad­vent of the gig econ­omy, which will in­crease the pro­por­tion of self-em­ployed in­di­vid­u­als in the work­force.

“The in­crease in the Earned In­come Credit and in­di­ca­tions of an ex­ten­sion of the Job­seeker’s Ben­e­fit to the self-em­ployed were very wel­come.

“How­ever, the con­tin­ued ex­is­tence of the 3 per cent sur­charge for self-em­ployed per­sons re­mains an anom­aly and con­tin­ues to raise fun­da­men­tal is­sues of fair­ness be­tween the treat­ment of em­ploy­ees and the self-em­ployed.”

‘As it stands, our mar­ginal tax rate and the point at which peo­ple com­mence pay­ing this is rel­a­tively high when com­pared to other Euro­pean lo­ca­tions such as the Nether­lands, Ger­many and Lux­em­bourg.’

On bal­ance, he be­lieves the Bud­get was pos­i­tive over­all given the con­text of the fis­cal con­straints fac­ing the Min­is­ter but the lack of progress on a num­ber of key ar­eas is a cause for con­cern.

SARP con­tin­ues to pro­vide some lever­age in at­tract­ing peo­ple to these shores and it’s an op­por­tu­nity missed that the Gov­ern­ment hasn’t looked at widen­ing it. – PwC Peo­ple and Or­gan­i­sa­tion part­ner Keith Con­naughton

In busi­ness, your peo­ple are your great­est as­set. With a mul­ti­tude of HR chal­lenges in­clud­ing Brexit and Real Time Re­port­ing on your agenda, our Peo­ple and or­gan­i­sa­tion team can help you man­age and solve all of your or­gan­i­sa­tional and tal­ent is­sues. In a world of con­stant change, trust the lead­ing voice in tax.

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