Scale is an interesting thing. Sometimes big is hard to envisage, even when you are looking right at it. That’s because to understand it you need to start by looking at the smaller parts, at the detail, before the whole becomes apparent, writes Liam Lynch, Tax Partner at KPMG.
Make no mistake about it, this Budget is big.
It was also a difficult Budget for any government to frame – in the shadow of the twin spectres of a no trade deal Brexit and a global pandemic that continues to wreak havoc on lives and businesses. The normal parameters just did not apply, and it needed to be ambitious. It is that, and the supports announced for the most affected sectors, including small businesses and cultural and entertainment enterprises, will be crucial in enabling them to ultimately reopen when the time is right.
There is little point in spurring demand for supply that just isn’t there.
The tax measures introduced are modest enough, which seems right in the current environment. However much more will be required on the tax front for businesses when we move into full recovery mode. For the moment there is little point in spurring demand for supply that just isn’t there. The overwhelming focus on supporting the supply side of the economy is therefore correct.
But that costs money, a lot of money, and that must be borrowed and ultimately financed. How we ultimately approach the recovery phase will therefore be crucial.
As the Ministers noted, total private savings in the economy have grown at the same rate as the national debt since the beginning of the COVID crisis. A key aim of the phase that follows will be to ensure that these funds are released and deployed effectively in building the recovery, alongside the €3.4bn Recovery Fund announced. Ideas, such as the review and possible expansion of the EIIS is one step towards that goal. Focusing the pent-up demand inherent in those private savings on key recovery drivers will also be a key factor to be considered by the Commission on Taxation and Welfare that is to be established.
It is crucial that we also recognise the contribution of those business who are doing well, keeping jobs in the economy and contributing to national tax revenues.
There has been much talk of Ireland having a K-shaped economy, with some sectors simply reeling while others are doing well. As well as supporting affected businesses through this crisis, it is crucial that we also recognise the contribution of those business who are doing well, keeping jobs in the economy and contributing to national tax revenues. The importance of those, largely export led, sectors as being key drivers of the recovery will likely take a leading role in the National Economic Plan to be published next month.
The next step is to recognise the full range of reasons why Ireland remains, and will remain, a stable and attractive location globally to do business. As a country we have remained open for business wherever possible during this health crisis. We have continued to be a safe place to do business and we have continued to respect the rule of law and kept global supply chains operating. Recognising all of these elements that have made Ireland successful as a safe global business hub, while engaging with the EU and OECD on global tax, shows us a way forward in maintaining a highly globalised economy that can encourage and support local enterprise.
This Budget is ambitious, as it had to be. As the Ministers recognised, this is a time of unprecedented uncertainty, but the ambition set out in the Budget aims to be equal to this challenge. This seems a valiant effort to strike the right balance while supporting both businesses decimated by the virus and those fearful of no trade deal with the UK.
How will Budget 2021 impact your business? Contact Liam Lynch, Tax Partner or any member of our tax team for guidance on these latest developments.
This article first appeared in the Irish Independent and is reproduced here with their kind permission.