- Housing issues hindering competitiveness
- Ability to work remotely could impact future tax receipts
- Budget action on entrepreneurship essential for economic future
- Sustainability policies an imperative as climate crisis continues
Maintaining Ireland’s competitiveness is critical in light of the triple threats of Brexit, international tax changes and the ongoing economic recovery from COVID-19, according to Ireland’s largest professional services firm, KPMG. In its pre-budget submission to Government, the firm has called for direct action to be taken in Budget 2022 to keep Ireland competitive for both domestic businesses and multinationals based or looking to locate and invest here.
Recommended actions include addressing fundamental issues with housing, further incentivising growth in Ireland’s domestic economy, reviewing personal taxes and the cost of employment, and the introduction of tax policy tools to promote sustainable behaviour from both businesses and consumers. The firm has also highlighted the new post-covid risk of more mobile workers choosing to live and work in other countries, and the potential negative impact this could have on tax receipts in Ireland in the future.
Commenting at the launch of its submission, Tom Woods, Head of Tax, KPMG in Ireland, said: “Keeping Ireland competitive is one of the business community’s main hopes for budget 2022. Irish business is reasonably optimistic about growth opportunities and the challenge will be to both protect our strong appeal to multinational investment and stimulate growth in domestic enterprise. The last two years in particular have shown just how critical FDI is to Ireland’s economy, whilst Irish owned businesses, which employ almost one million people and are much more geographically spread across the country, have never been so important. There is a significant opportunity to capitalise on the build-up of savings over the last 18 months and use tax policy to stimulate more investment in domestic businesses.”
Speaking about future challenges in light of new ways of working, Tom Woods added: “Technology, increased labour mobility, the growth in remote working and hybrid working models are giving mobile individuals lots of choice. Given our location and size, tax policy needs to play a greater role in attracting and retaining workers, as if these employees relocate outside of Ireland, we could see a more pronounced drop in tax receipts.”
Key points from KPMG’s pre-budget submission:
KPMG say that Ireland’s housing crisis is impairing Ireland’s competitiveness for the location of mobile talent and substantial business. Amongst other measures, the firm recommends:
- VAT - temporarily reducing VAT on new homes
- CGT - reforming and reinstating CGT rollover relief to help free up land in urban centres and reinstating indexation relief for CGT
- Corporation tax – reforming the taxation of rents earned by active rental businesses to encourage more Irish landlords into the market and rebalance the investment in Irish housing stock with foreign institutional investors.
- Incentive scheme - encourage individuals and communities to contribute savings towards investments aimed at increasing Ireland’s housing stock.
Cost of employment and personal tax
The firm has also called out the increasing importance of personal tax rates and the cost of employment for Ireland’s future competitiveness, in light of the BEPS 2.0 process. To prepare for future changes in how businesses will make investment decisions beyond corporation tax rates, the firm is calling for a broad review of Ireland’s personal tax regime, and in particular the marginal tax cost for Irish workers and employers. The review should also consider the post-covid shift, where many workers in high-value roles are seeking greater flexibility regarding how and where they work, including in a different country to where their employer is based.
Analysis completed by KPMG notes that the marginal rate of tax applying to higher income levels in Ireland is uncompetitive in comparison to other countries both inside and outside the EU.
The firm recommends:
- Undertaking in due course a broad review of Ireland’s personal tax regime, and in particular the marginal tax cost for Irish workers, including the self-employed, and employers.
- Applying a limit to the earnings base on which employer and employee social security contributions are levied, as is in place in countries like Germany, Spain, Greece, and Singapore
- Improving the SARP regime to remove the €1m cap, increasing the qualifying period from 5 years to 10 years for non-Irish domiciled individuals, and increasing the rate of relief for non-Irish domiciled individuals, and apply it to USC and PRSI as well as income tax.
Climate and sustainability
KPMG believes effective tax policies can be used to promote sustainable behaviour from both businesses and consumers. Its submission includes a number of recommendations to support Ireland in meetings its ambitious environmental targets including:
- Additional relief for energy efficient home improvements.
- Relief for farmers that make their land available to deliver renewable energy.
- Enhanced R&D credits for activities contributing to Ireland’s net zero carbon emissions target.
- Tax credits for the installation of EV charging facilities.
- Tax relief for investment in green bonds and additional pension relief for ESG investments.