Continued support for business in the Budget is welcome but maintaining competitiveness will be critical, says the Irish Tax Institute

12 October: The Irish Tax Institute welcomes the Government’s decision to continue the Employment Wage Subsidy Scheme (EWSS) until the end of April 2022. The wage subsidy schemes have been a crucial support to businesses over the last 18 months and the gradual withdrawal of the EWSS in the coming six months will help companies worst affected by the pandemic.

“We all know that the recovery has been uneven across the economy and there are businesses that are struggling to return to pre-pandemic levels of trading. The decision to continue the EWSS and the reduced rate of Employer’s PRSI will be of enormous benefit to these businesses,” said the Institute President, Karen Frawley.

Noting that this continued support is estimated to cost €1.26 billion, Ms Frawley said the tapering arrangements to the end of April 2022 announced in the Budget were appropriate. “I think the Minister got the balance right between supporting the businesses that have been hardest hit by the pandemic and the need to protect the public finances.”

The Institute believes the Employment Investment Incentive Scheme (EIIS) should be a powerful driver of innovation and productivity in our domestic business sector. We also agree with the Minister’s admission in his Budget speech that the scheme has yet to reach its full potential.

“We welcome Minister Donohoe’s undertaking to open the scheme to a wider range of investment funds and to ease the restrictions around the redemption window and the 30% expenditure rule. But we await the details in the Finance Bill to see if these changes will make this important scheme more attractive to investors and more user friendly for our high potential and early-stage enterprises,” said the President.

The Institute also welcomed the personal tax measures announced in the Budget. “Our effective personal tax rates at average salaries and above are high by international standards and have changed very little since the tax increases introduced during the financial crisis over a decade ago,” according to Ms Frawley. She pointed out that while the entry point to the higher rate had increased by €2,500, the personal and employee tax credits had remained unchanged since 2011 when they were each reduced from €1,830 to €1,650.

“Irish workers on average salaries pay more income tax than their counterparts in France, Germany, the UK or Sweden. High marginal rates make it difficult to attract skilled workers, particularly when the labour market is tight,” added Ms Frawley.

She said the changes to bands and credits announced by the Minister were a welcome start. “But if we are to remain an attractive location for investment, a more comprehensive review of our personal tax system will be required. We look forward to engaging with the Commission on Taxation and Welfare on this matter,” said Ms Frawley. The Institute welcomes the announcement that the Commission will shortly commence a public consultation and looks forward to taking part in the process.

The Institute congratulates the Minister on his success in securing the agreement of the European Commission to the continuation of the 12.5% corporate tax rate for our domestic sector. “We welcome the Government’s continued support for entrepreneurs and SMEs. The challenge now is to sharpen our competitiveness so that we can remain an attractive location for investment,” concluded Ms Frawley.