Budget 2010 Summary

Main Highlights

• No changes in income tax rates, tax credits or tax bands
• No changes in income levy rates and thresholds
• New system of universal social contribution to be introduced in 2011 to replace PRSI, Health Levy & Income Levy. Should lead to simplification of the system
• Mortgage Interest relief to be available until 2017 for those whose relief would expire in 2010 or thereafter. Relief will be abolished from the end of 2017
• Restriction on use of tax reliefs by high earners. Restriction to start to apply now at €125,000 and result is increase in effective tax rate above that from 20% to 30% plus PRSI and levies
• Reduction in tax relief on pension contributions to 33%.
• Pension lumpsums on drawdown to be revised shortly but a reference to consider the recommendations of the Commission on Taxation.
• Exemption from Corporation Tax for start up businesses extended for one year to 2010.
• Hint at extending R&D tax credits- no details
• Levy of €200,000 p.a. to be introduced for certain non-resident Irish nationals
• Carbon levy of €15 per tonne; petrol & diesel to increase tonight, home heating oil and other fuels from May
• Property tax on the way- possibly 2011.
• Water charges on the way - possibly 2011.
• Standard VAT rate cut from 21.5% from 21%
• Excise on alcohol reduced; 12c reduction in pint of beer, 16c on bottle of wine, 14c on half-measure of spirits
• No change to excise duty on cigarettes
• Commitment to continuation of 12.5% corporation tax rate reaffirmed
• Public sector pay cuts of between 5-10% for incomes up to €125k on a graded basis.
• For higher level public servants earning over €125k pay cuts of 8-15% on full income
• Car Scrappage Scheme to be introduced for 2010; €1,500 VRT rebate if car more than 10 years old is traded in
• Energy Conservation Retro fit-out scheme for housing to be introduced
• Taxation of pension lumpsums to be exempt up to max €200,000
• Tax relief of contributions reduced to 33% max; however both to be reviewed in context of National Pensions Framework
• Children’s Allowance to be cut by €16p.w. Unemployment allowances to be cut for younger recipients
• Credit Review System to be introduced to attempt to increase credit flow to business
• New National Savings Scheme – ‘National Solidarity Bond’- to be introduced in early 2010 to help fund capital products
• Labour intensive, energy efficient and flood relief capital projects to be prioritized

Income Tax & PRSI Changes

After some hefty tax increases in the last two Budgets there seems to have been a deliberate choice to leave well enough alone this time. Nevertheless there were some changes and a hint of what's to come in 2011.....

• The headline news is that there are no changes to income tax rates, credits or bands. Nor are there any changes proposed to PRSI or levies
• The committment to amalgamate PRSI, Health Levy and Income Levy into one universal social contribution from 2011 is to be welcomed as it should simplify an increasingly complex personal tax system
• The ability of higher earners to use tax relief to shelter themselves from income tax has been further curtailed. The reliefs will begin to be curtailed at income levels of €125,000 instead of €250,000 and the objective is to increase the minimum tax payable on such incomes from 20% to 30% (plus PRSI and levies)
• In a surprise move a new annual levy of €200,000 has been introduced for Irish nationals who are non-resident but who a capital base exceeding €5m in the State and earn over €1m per annum
• As regards the taxation of pensions, there is nothing much to report. The Minister referred to the recommendations of the Commission for Taxation to cap the amount of a tax-free pension lumpsum at €200,000 and to introduce a single 33% rate of tax relief on contributions. However he said he will hold back on doing anything until the government's National Pensions Framework is published shortly. So no change for now - but might this be a hint of what is to come?

STIMULUS MEASURES

With 2009 being such a difficult year for business the Minister was under pressure to introduce some stimulus measures to lift some of the gloom...

• VAT has been cut. Essentially last year's increase has been reversed and the standard rate now reverts to 21%. With the Chancellor of the Exchequer today confirming the UK VAT rate is to revert to 17.5% the differential between the two jurisdictions' VAT rates has been significantly reduced.
• Excise duties on alcohol have been reduced. The Minister has confirmed that this is in response to the volume of cross-border shopping and as much an effort to protect exchequer revenues as a stimulus measure.
• A Car Scrappage Scheme has been introduced, which will please the motor industry. However to avail of it the car you are trading in must be at least 10 years old. A VRT rebate of €1,500 will be available on the new car if you avail of this scheme.
• Government have prioritised labour intensive, energy efficient and flood relief schemes in capital programme
• A new savings scheme is to be introduced in early 2010 - a 'National Recovery Bond' - to enable citizens to contribute to the cost of the capital spending program. Investors can choose to invest for a five, seven or ten year period. Interest will be payable annually and a final redemption bonus will be paid to encourage investors not to withdraw their funds. Further details to be announced shortly.

Business Measures

Often measures relating to business don't generate headlines on Budget Day and tend to get hidden in the detail. Here are some of the major business measures in Budget 2010....

• The Minister has again reaffirmed the government's committment to retaining the 12.5% corporation tax rate, which he described as 'a global brand' of this country
• He has announced the establishment of a 'Credit Review System' on business lending. This will enable businesses who have been refused credit having exhausted the bank's internal processes to appeal such a refusal. Work to begin on this shortly. We will await further details but clearly this is an area of much interest and indeed concern to business and any positive developments would be most welcome.
• A range of new training schemes to be funded. The Minister has stated that the objective is to provide €136m to provide 26,000 training places.
• He has also announced that this will include €36m for an 'Employers Job Incentive Scheme' granting PRSI exemptions to employers who hire unemployed workers. Further details to come from the Minister for Social and Family Affairs. Clearly any schemes that assist business in maintaining jobs will be welcome by both business and employees but we will withhold judgement on the merits of such schemes until we see the full detail!
• The recent job subsidy scheme has been extended to all companies employing more than 10 people who are in financial difficulty.
• Job seeker allowances reduced particularly for younger people who are not engaged in training.