All budgets are incremental. They are creatures of their time. Creatures of the political, as well as of the economic winds.
his Budget was about consolidating and encouraging the post-Covid recovery. Its motto could be summarised: ‘Do no harm.’
But it was not silent.
From a business tax perspective, all the action was last week with OECD agreement on a 15pc global minimum effective rate of corporation tax. It sounds simple when you say it like that.
However, as Finance Minister Paschal Donohoe pointed out in his speech, the 12.5pc tax rate will remain for most.
The precise mechanism to apply a 15pc effective tax rate for companies with turnover in excess of €750m remains to be designed.
This will depend both on politics elsewhere, especially in the US, and an awful lot of heavy lifting to be done in determining the calculation of profits to which the 15pc will apply.
This will keep a lot of people very busy for quite some time.
As Mr Donohoe said, this OECD agreement brings certainty. Now we have signed up, it is in Ireland’s best interests to take a lead in pushing this process to a conclusion, ensuring it is globally implemented sooner rather than later.
With this out of the way, we can pivot to more effectively supporting new and growing domestic businesses.
This focus was clear in the Budget, with expansions proposed to the Employment Investment Incentive (EII) and to startup reliefs.
There is more to do, and government support for a genuinely innovative and entrepreneurial local business environment is more crucial than ever.
In this context, another wind that will blow into next year is the Commission on Taxation and Welfare.
The Commission will report by July 1, 2022, which is ample time for its recommendations to be considered, debated and possibly included in next year’s budget.
The minister specifically referenced the focus on three longer-term strategic areas currently being considered by the Commission: an ageing population; climate change; and digital disruption.
These are big issues. The Commission will be commencing a consultation process over the next while and it will be important that businesses fully engage with this process.
The level of risk, but also the level of opportunity, is at an unprecedented level. So we need to get this right.
The focus when it comes to ageing, for example, has tended to be on maintaining the retirement age. There has tended to be less focus on how we pay for this, and crucially on how this is spread.
The papers published by the Tax Strategy Group reference options that include increasing the rate of PRSI on self-employed individuals to over 12pc, bringing effective income tax rates in Ireland to over 60pc.
At the same time, the Government has indicated that auto-enrolment for pension provision could be introduced in 2023.
Changes to all or any of these will impact businesses and the cost of employing people, but clearly something has to give.
It looks like the action on this will be in the report of the Commission. Hence it is vital that there is robust engagement with the consultation process about to get underway.
Ireland has played its cards well in the international sphere. We are a trusted country in which to do business that abides by the rule of law.
There is much we can do to build on this to further develop our economic model, and our competitiveness in an uncertain international environment where havens of stability and trust will be magnets for trade and business. This should be our strategic focus.
In the meantime, the motto is resilience, recovery – and ‘do no harm’.
Liam Lynch is Head of Private Clients at KPMG
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