The recently published Programme for Government has many implications for Irish business. With a range of commitments on taxation, carbon reduction measures and a shift to greater sustainability, the document runs to 126 pages. Whilst silent on issues such as VAT and Customs, the programme covers areas such as potential support for remote working to strengthening Ireland's attractiveness as a location of choice for resilient supply chains.
Does the Programme for Government deliver?
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Stimulating economic growth will in of itself generate additional tax revenues which will bring down the deficit.
The Programme for Government sets out some specific measures and clear indicators of tax policy choices, which I believe will be broadly welcomed.
On personal taxes there are commitments:
- Not to increase income tax or USC rates
- To recommence the indexing of tax bands and credits in Budget 2022
- To increase the Home Carer’s Tax credit as subsidies for childcare increase
- And also to review the 3% USC surcharge on the self-employed with a view to reducing it over time
On corporate tax, there is a:
- Commitment to the 12.5% rate, which remains a cornerstone of our tax policy
- Commitment to the OECD BEPS process, particularly as it relates to the taxation of digital services
- Commitment to continuing the Roadmap on Corporation Tax Reform
- Recognition of tax as a national competence, which lays down an important marker in the global debate on the use of tax policy as a means of attracting business
The programme seeks to focus on measures that will reignite and renew the economy with a jobs led recovery. Stimulating economic growth will in of itself generate additional tax revenues which will bring down the deficit. This approach would certainly resonate with our own thinking on tax policy which we discussed at a recent webinar.
The parties reaffirm a commitment to FDI and to both defending our existing FDI as well as attracting new investment. There is also a plan to develop Ireland as a location of choice for resilient supply chains.
To the extent that additional tax needs to be raised the parties agree that such tax should be focussed on behaviours that are harmful to our environment, our health, and our society so a focus on carbon taxes, sugar, plastic levels.
On carbon taxes the commitment to increase carbon tax to €80/tonne by 2030 has been increasing to €100/tonnes with annual increments of €7.50/tonne.
There is also a plan to broaden the property tax base to new builds but to hold off as much as possible any increases to homeowners.
The programme also acknowledges the importance of innovation, particularly as it relates to supporting a transition to a low carbon economy. There is a commitment to an annual review of capital gains tax with a focus on gains realised from such activity.
There is also a commitment to improving the R&D regime for small domestic companies.
And finally there is a commitment to establish a Commission on Welfare & Taxation to consider the medium to long term how best to use tax system to drive economic activity and create sustainable employment and prosperity.
So the programme looks to support and stimulate a productive and healthy society both in multinational and domestic sectors with a mixture of specific measures and indicators of the coalition’s approach to tax policy. It is certainly a good platform to build from and we hope it gets the approvals required to bring it to life over the next few years.
We welcome the link between investment in infrastructure and skills and enhanced competitiveness which we have long advocated.
It is very encouraging to see the intent to focus on an investment-led recovery, prioritising investment in capital spending. The plan is to stimulate the economy through investment in public infrastructure, and critical areas such as housing, health care, transport, and energy.
We welcome the link between investment in infrastructure and skills and enhanced competitiveness which we have long advocated.
The programme includes proposals to establish a Recovery Fund which will prioritise productive and labour intensive capital investment projects. There is an intent to bring forward the planned review of the National Development Plan (NDP) from 2022 to ensure the NDP remains consistent with the ambition of the Programme for Government. But importantly that the review will not frustrate or delay existing projects.
There is a clear recognition that Government will need to borrow to fund the deficit but no mention made of leveraging in private finance.
In transport there is an intent for a fundamental change in the nature of transport in Ireland with 20% of the total transport capital budget to be allocated for cycling projects and pedestrian infrastructure. Thereafter there will be a 2:1 ratio of expenditure between new public transport infrastructure and new roads. Specifically, the Government will prioritise plans for the delivery of Metrolink, DART expansion and interconnector and Bus Connects with an expanded role for the NTA.
Other specific areas called out for mention include:
- a clear intent to fund Irish Water’s capital investment plan of €8.5 billion committed to in Project Ireland 2040.
- plans to continue to invest in healthcare infrastructure and equipment, in line with Project Ireland 2040. In particular to open the National Children’s Hospital and commence the building of the National Maternity Hospital at Elm Park co-located with St Vincent’s Hospital, Dublin.
- In housing a clear intent to prioritise the increased supply of public, social, and affordable homes and in particular progress a state-backed affordable home purchase scheme to promote home ownership. Specific mention made of the role of the expanded role for the LDA
- Work to enhance productivity in the construction sector, including utilising modern methods of construction. This work will be guided by the Department of Public Expenditure and Reform. This follows on from the recent report completed by KPMG and Future Analytics outlining a series of recommendations to improve productivity in the construction sector.
Finally and as expected the programme includes a strong commitment to the Climate Action Plan with an intent to deliver an average 7% per annum reduction in overall greenhouse gas emissions from 2021 to 2030 (a 51% reduction over the decade) and to achieving net zero emissions by 2050. New strategies will be needed to sustain a reduction trajectory that will increase over time to meet these targets. An intent also to take the necessary action to deliver at least 70% renewable electricity by 2030.
The Green Agenda
This ambitious plan will help put Ireland back on a par with those countries leading the fight against climate change.
The green agenda within the Programme for Government is wide ranging and touches on virtually every aspect of society and the economy. One of the most eye catching is a commitment to net zero by 2050 enshrined in a new Climate Action Bill within the first 100 days of Government.
While the Government is promising more renewable energy friendly legislation to speed up the deployment of onshore wind, solar and offshore wind, legislation is also being brought in to actively curb carbon intensive industries including gas extraction, shale gas importation, LPG gas storage and turf extraction. Key features of the programme include:
- Commitment to supporting the European Green Deal
- Offshore Wind Sector
- Development of new Stress testing for financial institutions to look at the impact of the tangible risks of higher temperature scenarios and involvement with the fossil fuel economy on their portfolios
- Transition to a low carbon future
- Climate Governance
With the right type of policy and regulatory framework in place, the capital markets will respond in a very favourable manner particularly given the importance of this issue and the strong support signals being given by this new Government.
Most importantly in a global context, this ambitious plan, assuming it is delivered upon, will help put Ireland back on a par with those countries leading the way on the fight against climate change.
It’s important that the measures put in place to promote a return to normality and growth in the indigenous sector are available to a wide cohort of companies.
The critical role which SMEs have always played the economy and will play in the rebooting of the Irish economy is a central theme throughout the Programme for Government, with SMEs referred to more than once as the “backbone” of our economy and key drivers of employment.
The term indigenous company and SME is used interchangeably in the programme and there seems to be a wide acknowledgement of the critical role played by Irish companies regardless of their size. It is important the measures put in place to promote a return to normality and growth in the indigenous sector are available to a wide cohort of such companies, and that companies are not excluded by virtue of failing to meet certain indicators which are overly narrow. For example, it would appear inequitable to prevent companies with more than 50m of turnover and 250 employees from accessing incentives while a more profitable company with lower turnover and less employees might qualify.
Our recent submission to the Department of Finance suggested that it would be worthwhile considering expanding the definition of an SME so as to allow certain supports to be provided to larger scale companies than would be allowed under the current definition of less than €50m turnover and 250 employees. This would facilitate support being provided to some fantastic growing Irish businesses with real world class potential.
The programme includes a comprehensive suite of funding measures for Irish business – what will be critical from here on in is the speed at which many of those measures are implemented.
The programme outlines an immediate Jobs Initiative, centred on a Recovery Fund with a longer-term National Economic Plan to follow in October.
1. The Recovery Fund
It will fund investment in three different elements: Infrastructure development, reskilling and retraining and supporting investment. This fund will include measures to help Irish companies to access credit and capital to support the retention and creation of jobs.
- This will include implementation of many measures already outlined including credit guarantees schemes, role of state-backed lenders such as SBCI, Business Restart Grant and further grant supports for SMEs
- Importantly it includes proposals to review the Pandemic Stabilisation Fund and whether changes are needed to enhance the role of the Irish Strategic Investment Fund in this regard
- It will also review how we can utilise and leverage European Investment Bank funding and other opportunities for external funding to the maximum extent possible
- It also intends to take further sector specific measures, that may be needed to support the hospitality, retail, entertainment, arts, and leisure sectors.
2. National Economic Plan
- Allow the State to partner with financial institutions and large corporations to support SMEs to recover and to retain and expand employment
- Support the role that venture capital can play in driving growth in the indigenous economy, by ensuring a stable, long-term funding landscape
- Support the development of sustainable plans to manage potentially higher levels of corporate and SME debt. This will be done in conjunction with the Central Bank of Ireland
- Enhance the mandate for the Strategic Banking Corporation of Ireland (SBCI), in order to get low cost finance to SMEs
- Enable the Credit Union movement to grow as a key provider of community banking in the country.
Additional measures will focus on:
- Scaling up Enterprise Ireland support for smaller companies to invest in technology for clean processes, waste, and energy efficiency
- Build upon the Recovery Fund to support those elements of the economy which
- Are in line with the public health advice and able to facilitate additional demand
- Are in line with the high-level review of the economy
- Will have the greatest impact, nationally and regionally.
Property & Construction
The measures should help the construction sector play a strong role in recovery of jobs as we come out of this crisis.
The Programme for Government proposes a number of initiatives which should see the property and construction sector be able to take a leading role in assisting our recovery and future success. While the detail and timelines to move these initiatives from aspirations to reality will be crucial, some welcome measures include:
- A proposed retrofitting scheme to bring 500,000 homes up to a B2 energy rating
- A renewed focus on town centre renewal and development
- A commitment to create an additional 50,000 social housing units, which will be Local Authority led, including exploration of a ‘cost rental model’, again Local Authority led.
- Plans to retain and expand the ‘Help to Buy’ scheme
- Proposals to accelerate the review of the National Development Plan and a commitment to stimulate the economy using public infrastructure spend, all of which could be supportive of jobs for the sector
- A commitment to clarify how commercial rates will be treated for the remainder of 2020
The above measures should help the construction sector play a strong role in recovery of jobs as we come out of this crisis. While many of the above initiatives appear to be Local Authority led, the private sector will need to focus now on how they will feature in the delivery of these initiatives.
Also mentioned was the intent to create of a code of conduct between landlords and tenants for commercial rents, although there are no specifics on what this might look like.
We would suggest that the Commission considers laying out a roadmap for how tax is administered in a digital and remote working environment.
We welcome the commitment to a new National Digital Strategy in the Programme for Government to drive digital transformation in the public service and better leverage available technologies. Streamlining processes for businesses should be a central part of this strategy, to reduce administrative burdens and take account of new operating environments and remote working.
We also welcome the establishment of a Commission on Welfare and Taxation to independently consider how best the tax system can support economic activity. As well as setting policy, we would suggest that the Commission considers laying out a roadmap for how tax is administered in a digital and remote working environment. This would build on the work of Revenue to date, but also provide certainty to taxpayers on the timeline for areas like real time taxes such as DWT and VAT and seek to reduce the administrative cost of new and existing taxes for business.
VAT & Customs
The programme is silent on any specific measures the new Government may take on VAT. As a stimulus measure we would welcome a temporary and targeted reduction of the VAT rates in Ireland and the reintroduction for a longer term of a 9% (or lower) VAT rate for the tourism and hospitality sectors.
The Programme for Government continues the prior Government’s strong commitment to ensuring that Ireland is Brexit-ready for all possible outcomes and to prioritise having a tariff-free, quota-free, trade agreement with the UK and the full implementation of the Northern Ireland Protocol.
The programme does not comment on any specific measures the new Government may take on VAT. A number of other jurisdictions e.g. Germany and Austria have introduced VAT rate cuts as a targeted stimulus measure to boost cashflow and stimulate demand.
With the twin challenges of COVID-19 and Brexit facing the economy, we would welcome a temporary and targeted reduction of the VAT rates in Ireland. We suggest a temporary expansion of the zero-rate of VAT to certain supplies made by affected businesses e.g. restaurants, cafes, bars, retail etc and a longer term re-introduction of the 9% (or lower) VAT rate for the tourism and hospitality sectors.
Personal Tax Policies
In making their tax policy choices, the three parties find themselves in an environment which is utterly changed from when they published their manifestos.
Personal tax policies
In making their tax policy choices, Fianna Fáil, Fine Gael and The Green Party find themselves in an environment which is utterly changed from when they published their manifestos. At that time, Ireland’s economy continued to grow but with risks to the pace of that growth. Now, the impact of Covid-19 means that urgent support is required to restart the economy, the EU budgetary framework has been overhauled to support such stimulus but the longer term challenges such as climate and housing remain the same. So what is proposed?
What does the Programme for Government propose to support private sector investment?
There is reference to supporting Venture Capital to provide long term financing for Irish businesses. It is unclear what this might entail, but it is feasible that it could include some adjustment to the current EII scheme. The programme also commits to encouraging greater uptake of R&D tax credits by SMEs through examining issues with respect to preapproval procedures and reduced record-keeping requirements.
What is proposed for Irish entrepreneurs?
There are high level commitments made in relation to supporting entrepreneurs and SMEs but the detail has yet to be determined. Overall, there is a strong recommitment to the 12.5% corporation tax rate included.
Tax and pensions
Commitment to introduce auto-enrolment to fund pension provision. Employer and employee contributions will be matched, and an additional State top-up provided (prior proposals set this at 1/3rd of employee contributions). Employee contributions will be phased in over a decade, but with provision to opt-out. A choice of a range of pension savings products is proposed, along with a cap on charges by pension providers.
Foreign Direct Investment
The new Government has provided certainty by restating Ireland's long standing commitment to the 12.5% corporation tax rate and to ensuring Ireland remains an attractive hub for foreign direct investment, while making welcome new commitments to focus on Ireland's role in global supply chains and disruptive technologies.
In a period of ongoing uncertainty, all businesses operating in Ireland will welcome the unwavering commitment to the 12.5% tax rate and the continued certainty this affords. In acknowledgement of the key role played by FDI in Ireland, the Programme for Government rightly reconfirms the ongoing commitment to FDI – both supporting existing investment and attracting new investment. Alive to one of the crucial issues currently facing many businesses of managing their supply chains in light of COVID-19 and Brexit, the programme contains an aspirational commitment to develop Ireland as a location of choice for resilient supply chains. No details of targeted measures to achieve this are outlined, however, along with commitments to prepare for disruptive technologies, this is welcome inclusion to support Ireland’s position as a hub for FDI and we would suggest there is appropriate dialogue with stakeholders to make a success of this initiative.
From an international tax perspective, the programme recognises that taxation is a national competence – a long held position recognising Ireland’s sovereignty, with continued relevance given calls in certain EU quarters for increased harmonization of taxes. There is also confirmation that Ireland will continue to play an active part in international tax reform via the OECD, and acknowledgement that while taxation of the digital economy must be reviewed, this should occur at the OECD level and not through unilateral actions. Finally there is a continued commitment to implement the Roadmap on Corporation Tax Reform, released in 2018.
Get in touch
The Programme for Government is a lengthy and detailed document with many implications for Irish business. If you have any queries on the contents and the above insights as they relate to your business, we’d be delighted to hear from you.