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Programme for Government

 

The Fine Gael / Labour coalition published their Programme For Government on 6 March 2011 setting out the broad policy, including tax policy, of the Irish Government for the next 5 years. A number of key tax issues from the Institute’s representations are reflected in the Programme for Government, in particular those relating to a simpler tax regime for smaller businesses, those on R&D tax relief and the importance of maintaining and eventually reducing the marginal income tax rate.   

On this Webpage

On this webpage you will find more details on the main tax proposals in the Programme for Government by clicking on the links below. These are compared with the commitments under the EU/IMF Programme of Financial Support for Ireland.

    • Corporation Tax
    • Jobs & Small Businesses
    • VAT
    • Income Tax & USC
    • Tax Reliefs & Expenditures
    • Property Tax
    • Water Charges
    • Pensions
    • Capital Taxes
    • Civil Partners & Cohabitees
    • Tax Administration / Revenue Powers
    • Carbon Tax / Environment Tax
    • Other Tax Proposals
    • Contact Us
Proposals in Programme for Government:

 
Corporation Tax

Issue 

Proposal 

 12.5% rate

• Keep the corporate tax rate at 12.5% (Fine Gael and Labour both committed to this).

 Capital Allowances

• Subject to completion of a cost benefit analysis, accelerate capital allowances on software purchases against corporation profits tax from 8 to 3 years (also in Fine Gael’s manifesto).

 R & D Credit

• Give companies the option to offset the R&D credit against Employers’ PRSI as an alternative to Corporation Tax (also in Fine Gael manifesto).
• Extend the R&D tax credit to the games industry in order to attract game developers and grow the game sector in Ireland (Labour had included in their manifesto).
• See also R &D credit under ‘Jobs and Small Businesses’ below for more.

 Innovation

• Develop Ireland as a “digital island” and a leader in cloud computing
• Develop a national Intellectual Property (IP) protocol
• Promotion and support of investment in technology research, development and commercialisation beyond basis research.

Proposals in EU/IMF Programme of Financial Support for Ireland

    • No specific proposals on corporation tax.

Proposals in Programme for Government:

 
Jobs & Small Businesses
 

Issue

Proposal

 Single Business  Tax for Micro Enterprises

Revenue Commissioners to examine the feasibility of introducing – on a revenue neutral basis – a Single Business Tax for micro enterprises (with a turnover of less than €75,000 per annum) to replace all the existing taxes on sole traders and small businesses to cut compliance costs and make starting a business much less daunting.

 Employer PRSI

• Halve the lower 8.5% rate of employer PRSI up to end 2013 (this applies in respect of jobs paying up to €356 per week).
• No increase in the standard 10.75% rate of employer PRSI.

Both of the above were included in Fine Gael’s manifesto.

 R & D

Subject to completion of a cost benefit analysis, the R&D tax credit regime to be amended in the following ways to make it more attractive and accessible to smaller businesses:

• Companies with R&D expenditures of under €100,000 will be entitled to full tax credit on those entire expenditures as opposed to just the increment over the base year, with marginal relief for companies with expenditure just over €100,000.
• Companies will be able to offset the R&D credit against employers’ PRSI as an alternative to an offset against corporation tax.

• To cut down on red tape in the applications process, companies in receipt of a Research, Technology and Innovation (RTI) grant from one of the development agencies will be automatically deemed as entitled to the R&D tax credit.

All of the above were included in Fine Gael’s manifesto.

 

Capital Allowances on Software

As under ‘Corporation Tax’ above, subject to completion of a cost benefit analysis, it is proposed to accelerate Capital Allowances on software purchases against corporation profits tax from 8 to 3 years.  This would also apply to the capital allowance deduction for income tax in the case of sole traders.

Fine Gael had included this proposal in their manifesto.

Social Welfare Entitlements for Self Employed

Establish a Tax and Social Welfare Commission to examine entitlements of self-employed and the elimination of disincentives to employment.  Fine Gael proposed this in their manifesto in which they stated that this could help entrepreneurs and new business start-ups by simplifying tax compliance and continuing social welfare cover for a limited period.

Proposals in EU/IMF Programme of Financial Support for Ireland

    • “Allied Irish Bank and Bank of Ireland have agreed, in connection with recapitalisation last March, to make available not less than €3 billion each for targeted lending for new or increased credit facilities to small and medium-sized enterprises in both 2010 and 2011 as well as funds for seed and venture capital and for Environmental lending.”

    • Legislative and other measures will be introduced with a view to:

      • improving the efficiency of the administration of unemployment benefits, social assistance and active labour market policies, by exploiting synergies and reducing the overlapping of competencies across different departments;
      • enhancing conditionality on work and training availability;
      • strengthening activation measures via

        i.the introduction of instruments to better identify of job seekers' needs ("profiling") and increased engagement;
        ii. a more effective monitoring of jobseekers' activities with regular evidence-based reports;
        iii. the application of sanction mechanisms for beneficiaries not complying with jobsearch conditionality and recommendations for participation in labour market programmes set in such a way as to imply an effective loss of income without being perceived as excessively penalising so that it could credibly be used whenever lack of compliance is ascertained.”

 
VAT

Proposals in Programme for Government:

    • Limiting the increase in the top rate of VAT to 23% (currently 21%). Labour had proposed a 1% increase in their manifesto while Fine Gael had proposed an increase in the rate in line with that provided in the National Recovery Plan (i.e. 1% increase in 2013 to 22% and an additional 1% increase in 2014 to 23%).  It would seem that the Programme for Government is following the Fine Gael / National Recovery Plan in this regard.
    •  A two year cut in the 13.5% rate of VAT to 12% up to end 2013. This was also included in Fine Gael’s manifesto.
    • Maintain the exemption from VAT for service companies that export more than 90% of their output. Fine Gael also included this proposal in their manifesto.

Proposals in EU/IMF Programme of Financial Support for Ireland

    • Actions to be completed by end Q1-2012:

      • “Government will rigorously implement the budget for 2012 and the fiscal consolidation measures announced afterwards, consistent with the requirements of the excessive deficit procedure. Progress is assessed against the (cumulative) quarterly primary deficit ceilings in the Memorandum of Economic and Financial Polices (MEFP) including the Technical Memorandum of Understanding (TMU). Finance Bill 2012 will contain necessary provisions to bring into effect the already signalled VAT increases in 2013 and 2014.”

Proposals in Programme for Government:

 
Income Tax & USC

 Issue

 Proposal

 Universal Social Charge (USC)

Review the USC.  No further details are provided in the Programme for Government. In Fine Gael’s manifesto they stated that they would review the effect of the USC on work incentives and employment participation for Budget 2012.

Labour stated they would reform USC to alleviate for families hardest hit and that they would extend the 10% USC to all income over €100k.

 Income tax rates, bands and credits

Maintain the current rates of income tax together with bands and credits. No increases in the top marginal rates of taxes on income. Fine Gael had also stated this in their manifesto while Labour proposed no increase in income taxes on earnings under €100k.

Proposals in EU/IMF Programme of Financial Support for Ireland

    • A lowering of personal income tax bands and credits signalled for Budget 2012, Budget 2013.

Proposals in Programme for Government:

 
Tax Reliefs Expenditures

Issue 

Proposal

Property Tax Reliefs

Reduce, cap or abolish property tax reliefs and other tax shelters which benefit very high income earners. 

Fine Gael also proposed the above subject to the forthcoming impact assessment study.
Labour proposed eliminating tax expenditures including legacy property reliefs and also the curtailment of other (unnamed) minor reliefs.

 

Restriction of Reliefs for High Earners

Implement a minimum effective tax rate of 30% for very high earners.  This currently applies to those earning over €400,000.

In their manifestos, both Fine Gael and Labour proposed that the income level at which the minimum effective 30% tax rate applies be reduced to €250,000.

Tax Exiles

Ensure that tax exiles make a fair contribution to the Exchequer. Fine Gael proposed the introduction of new residency rules for tax exiles (as outlined by the Commission on Taxation). Labour proposed strengthening Revenue action to reduce tax-evasion by tax exiles.

Cost Benefit Analyses

Publish cost-benefit analyses for major infrastructure proposals and “tax expenditures” in advance of Government approval. This was contained in Fine Gael’s manifesto.

 
Proposals in EU/IMF Programme of Financial Support for Ireland  

    • "A reduction in general tax expenditures" signalled for Budget 2012 and Budget 2013.


Property Tax


Proposals in Programme for Government:

Consider a site valuation tax taking account of the significant number of households in mortgage distress and the need to provide local government with a reliable stream of revenue.

Both Fine Gael and Labour had proposed a type of site valuation tax in their manifestos but only from 2014 (see below in terms of their interim proposals on property tax). In Fine Gael’s manifesto they stated that they would empower local authorities to put in place, following the 2014 local elections, fairer alternatives to recurring annual tax on the family home. The options would include:

        (a) No extra local taxes;
        (b) Increased local user charges for waste etc; or
        (c) The option of a local “site sale profits tax” on the profit made from the site value on the sale of a residence (sales proceeds, less cost indexed by inflation, less stamp duty paid and less home improvements).

Proposals in EU/IMF Programme of Financial Support for Ireland

    • Introduction of a property tax signalled for Budget 2012.
    • Increase in property tax signalled for Budget 2013.


Water Charges


Proposals in Programme for Government:

The Programme proposes the creation of a new body, Irish Water, to take over responsibility from the separate local authorities for Ireland’s water infrastructure and the introduction of a fair funding model to deliver clean and reliable water. Water meters are to be installed in every household in Ireland allowing a move to a charging system that is based on use above the free allowance.  This is in line with Fine Gael’s proposals in their manifesto however Labour had indicated in their manifesto that they did not favour water charges.

Proposals in EU/IMF Programme of Financial Support for Ireland

“In advance of the introduction of water charges…[t]he government will have undertaken an independent assessment of transfer of responsibility for water services provision from local authorities to a water utility, and prepare proposals for implementation, as appropriate with a view to start charging in 2012/2013.”  

Pensions

Proposals in Programme for Government:

The Programme for Government is relatively light on detail as regards pension policy.  It includes the following (potentially far-reaching) proposals:

    • “Reform the pension system to progressively achieve universal coverage, with particular focus on lower-paid workers, to achieve better risk sharing, and to provide for greater flexibility for those who wish to retire on a phased basis.”
    • “Cap taxpayers’ subsidies for all future pension schemes for politicians (and indeed for everybody) that deliver income in retirement of more than €60,000.” This was also in Fine Gael’s pre election manifesto. They provided that this measure would be subject to transitional arrangements for those approaching retirement.

Proposals in EU/IMF Programme of Financial Support for Ireland

    • Reductions in private pension tax relief and public service pension adjustments signalled for Budget 2012 and Budget 2013.


Capital Taxes

Proposals in Programme for Government:

Both parties proposed changes to CGT and CAT in their manifestos (see below) however there is no mention of these changes in the Programme for Government.

Proposals in EU/IMF Programme of Financial Support for Ireland

Reform of capital gains tax and capital acquisitions tax signalled for Budget 2012. 


Civil Partners & Cohabitees

Proposals in Programme for Government:  

    • Enact legislation to amend tax and social welfare law in respect of civil partnerships. Both Fine Gael and Labour had included proposals to this effect in their manifestos.  It is quite likely that this legislation may be contained in a second Finance Act in 2011. 
    • The Programme for Government also states that “our tax, social welfare and other laws should not discourage people from getting married or cohabiting. For example, single mothers lose the One Parent Family Payment if they marry. Over time, we will transform it into a family income-based payment that does not discourage marriage or work.”

Carbon Tax / Environment Tax

Proposals in Programme for Government:

There is very little detail in the Programme on carbon tax, other than to provide specifically for an exemption for farm diesel from further increases in carbon tax.

Ireland will be positioned as a leading player in the global carbon market, and a centre of excellence in the management of carbon

Energy efficiency for new buildings will be improved, with a view to moving towards zero carbon homes in the longer term. All new commercial buildings will be required to significantly reduce their carbon footprint

Proposals in EU/IMF Programme of Financial Support for Ireland

    • Increase in carbon tax signalled for Budget 2012.

Other Tax Proposals


Proposals in Programme for Government:

The establishment “of an independent Fiscal Advisory Council (FAC) separated from fiscal decision makers in Government that would undertake official fiscal macroeconomic projections and monitoring.
This is in line with recommendations made in the report of the Independent Review Panel “Strengthening the Capacity of the Department of Finance” [http://www.finance.gov.ie/documents/publications/reports/2011/deptreview.pdf] published on 1 March 2011.

The FAC functions would include identifying and advising on cyclical and counter-cyclical fiscal policies and structural deficits; the cyclical or temporary nature of particular revenues; and the need to maintain an appropriate and effective tax base.

The FAC will be independent of Government and will report to the Dáil and the public.


Contact Us

Cora O'Brien Deirdre Daly
Director Manager
Email: cobrien@taxinstitute.ie     Email: ddaly@taxinstitute.ie
Tel: + 353 (0) 1 6631719 Tel: + 353 (0) 1 6631709