One word that encapsulates Budget 2021 is COVID-19… John Lowe of Money Doctors reports….
Paschal Donohoe, Minister for Finance and Michael McGrath, Minister for Public Expenditure & Reform delivered the Budget speech at 1pm on Tuesday 13th October 2020.
The Budget 2021 was essentially all about one thing – the impact of COVID-19 and remedies to ease the effect it has had on our citizens and economy rather the effects of a disorderly Brexit. Budget 2021 delivered by Minister of Finance Paschal Donohoe announcing a € 9billion social welfare package together with Minister for Public Expenditure and Reform Michael McGrath’s measures addressed many of those concerns but sadly not all. Propping up the economy not growing it is one viewpoint of Budget 2021…putting money in your pocket and keeping it there.. one Minister stated. The overall budget package was in the region of €17.75 billion – a Budget deficit of € 21.5billion or 6.2% of Gross Domestic Product (GDP), with €14.5bn of that already pre-committed to spending arising from Covid-19 supports and other policy decisions taken in previous years. It was the largest budget package in the history of the state.
At the beginning of this month, Ireland recorded an exchequer deficit of almost €9.4 billion in the year to the end of September. The total revealed by the Department of Finance compares with a €38 million surplus in the same period last year…“a very very big deficit .. it will be run over the next two years and that would have been unimaginable before COVID-19” Minister Donohoe stated adding “the coronavirus pandemic has been the greatest challenge to face the country since it gained independence”
A COVID-19 recovery fund ( € 4billion – a compensation scheme for businesses forced to close plus extending the PUP and EWSS payments beyond next April. The commercial rates waiver, which was in place for quarters 2 and 3 this year, was extended into 2021 ), Health ( € 4billion ) Housing (€ 3.3billion including 12,750 new homes added to the stock of social housing of which 9,500 will be built plus the Help to Buy Scheme – € 30,000 or 10% for 1st time buyers of new or self-build homes extended until the end of 2021 ) and Climate change were the main priorities of Budget 2021, with the hospitality sector, tourism, entertainment ( a grant scheme for artistes and venues was introduced ) and the arts probably being the most affected with thousands in danger of losing their jobs once these COVID -19 payments cease. Even taxi drivers were mentioned – license renewals waived plus scrappage scheme introduced. Much of the spending was directed at businesses and the self-employed whose livelihoods were wiped out. The reduction in VAT in the hospitality and tourism sectors from 13.5% to 9% is welcome but as they say, a drop in the ocean while the 2% reduction in normal VAT to 21% in the July Stimulus will end next February. The reduction also last July from € 350 per week to € 300 was not reversed leaving many with the minimum on which to live.
Climate change was boosted with several initiatives. Carbon tax was also increased by € 7.50 per tonne to € 33.50 per tonne as part of the promise to reach € 100 by 2030… meaning more expensive petrol ( € 1.28 extra per 60 litre fill ) and diesel ( € 1.47 extra per 60 litre fill ) plus 90cent on a bag of coal and 20cent on a bale of briquettes. There were also changes in the VRT, giving a further incentive to go electric or hybrid making the buying choice more competitive, especially with road tax now more expensive for diesel and petrol models. Yes not a good day for the motorist.
With virtual lockdown, people are staying at home using more electricity, gas and heating – more expense so the increase of Fuel Allowance of € 3.50 a week to € 38, plus 4 extra weeks’ payments as at the start of the year is better than nothing. The Living Alone allowance of € 14 per week was also increased to € 19 together with the announcement of the reinstatement of the double Christmas bonus – good news for the 200,000 older and vulnerable citizens. The government allocation of 19 million hours in home-care packages was increased by 5million hours to 24million hours. The old reliable, cigarettes, went up 50cent per pack while 400,000 citizens on the PUP payments (228,000 of them) and jobseekers’ allowances will also receive the Christmas bonus this December. A little bit of cheer.
Highlights at a glance…
- €3.8 billion to support existing services, particularly health
- €3.4 billion for COVID-19 and Brexit recovery fund, including targeted SME supports
- No broad changes to personal income tax credits or bands
- Hospitality sector VAT rate cut from 13.5% to 9%
- €50 million in a Live Entertainment Supports package. Arts Council funding will increase to €130 million, which is a €50 million increase on last year’s allocation
- Pension age increase to age 67 by 1st January 2021 was scrapped
- Climate change
- Carbon tax has increased by € 7.50 per tonne
- Petrol / diesel up over 2 cents per litre
- VRT and motor tax reform for new and old cars based on emissions
- Christmas bonus
- 100% bonus will again be paid December 2019 to those qualified – 1.2 million for December 2020 PLUS PUP recipients (228,000)
- € 3.3billion allocated including another 12,750 new social homes in 2020 and 9,500 in 2021.
INCOME & OTHER TAXES
- No changes to income tax or the bands
- Employees working at home may be able to claim some expenses for income tax purposes
- where the employer makes payments towards the expenses of working from home, up to €3.20 may be paid to employees without a Benefit-In-Kind arising;
- where the employer does not make a contribution, the worker may be able to claim tax relief on certain utility expenses such as a portion of heat and light and broadband. Details will be set out in Revenue guidance on the topic; and
- claims may also be made for any other vouched expenses incurred “wholly, exclusively and necessarily” in the performance of the duties of their employment.
- Two income tax credits have been increased..
- The earned income tax credit provided to the self employed and proprietary directors increases by €150 in 2021 to €1,650
- The dependent relative tax credit of €70 increases by €175 in 2021 to €245
Universal Social Charge
- One change in the 2nd band ( up € 203 )
|First €12,012||0.5%||First €12,012||0.5%|
|Next € 8,472||2.0%||Next € 8,675||2.0%|
|Next €49,560||4.5%||Next €49,560||4.5%|
- For the self-employed only when income exceeds € 100,000 the rate continues to attract 3% additionally to 11% ( 8% for employees )
- Remains unchanged at 12.5%
Capital Gains Tax
- Remains at 33%
Capital Acquisition Tax ( inheritance tax )
Remains the same
- The threshold for Group A category ( parent to child ) € 335,000
- Categories B € 32,500 & C € 16,250
- Rate remains at 33% over the thresholds
EXIT investment rates
- No change in the Budget speech in the exit tax rate of 41% on investments.
THE MOTOR INDUSTRY
- VRT and Motor Tax are being reformed
- With the full implementation of the new emissions testing system, WLTP, from January next a new structure of rates and bands for VRT and motor tax. This new structure sees an increase in the number of VRT Bands to 20, with a wider gap between the highest and lowest VRT rate (7% to 37%).
- To create a level playing field between new cars and used imports, which have been subject to different emissions tests, used imports subject to the old emissions test will have their CO2 values uplifted to a level equivalent with the WLTP test to which all new cars are subject.
- VRT reliefs for Plug-in Hybrid Electric Vehicles and hybrids will be allowed to expire having regard to the fact that there will now be much lower VRT rates for low emission cars.
- Taper relief for Battery Electric Vehicles. It should be noted that the changes to the VRT rates and bands compensates for the changes to these reliefs.
- Following on from its introduction in last year’s Budget, adjustment of the Nitrogen Oxide (also known as NOx) surcharge bands so that higher NOx emitting vehicles will pay more.
- Motor Tax rates will remain unchanged for all cars in the engine sized regime and all but the most pollutant cars in the post-2008 regime.
- A third Motor Tax table for cars registered from the 1st of January next year to take account of the introduction of the WLTP emissions test.
- Petrol / diesel
- Up 2 cents per litre (or € 1.28 for every 60 litre fill on petrol and € 1.47 for every 6 litre fill on diesel) from midnight of 13th October 2020. This is the second of 10 planned annual increases. Home heating oil will only increase next May AFTER the winter has passed.
SMALL & MEDIUM SIZED BUSINESSES
- VAT (Valued Added Tax)
- 13.5% rate ( hospitality and tourism sectors) reduced to 9% from 1st November
- 21% (introduced in the July Stimulus ) retained ‘til 2021
- Increase in employer’s PRSI rates
- There was a minor increase in the employee earnings limit for Class A PRSI at which the full 11.05% employer PRSI rate applies, from €395 to €398 per week
- Employer Wage Subsidy Scheme (EWSS) extended ‘til the end of 2021 (as was the PUP scheme)
- COVID-19 Restrictions Support scheme for qualifying companies…
- allows for cash reimbursements to qualifying businesses whose trade has been significantly impacted by restrictions – up to € 5,000 per week maximum. 10% of 2019 turnover up to €1million and 5% over €1million …turnover must be down up to 80% of the 2019 figures.
- extension of the tax warehousing scheme to include repayments of Temporary Wage Subsidy Scheme funds owed by employer
- On tourism, €55 million would be provided for a “tourism business support scheme and €5 million for tourism product development”
- One year extension to the residential stamp duty refund scheme
- Section 481 scheme for film will now run until December 31st 2023 at its highest rate of 5%
SOCIAL WELFARE BENEFITS
- The child supplement to certain Social Welfare benefits, such as Jobseekers and Illness, will be increased in 2021 by €5 per week for children over 12 and by € 2 per week for a child under 12
- The Carer’s Support Grant will be increased by €150 to €1,850 per year
- Christmas Bonuses will be paid to pensioners on 7th December as well as to PUP (those of the 228,000 who have been on the PUP scheme for over 4 months) and Jobseekers’ Allowances recipients.
- The Living Alone allowance will be increased by €5 per week from €14 pw to €19 per week from March 2021.
- The planned increase in the pension age to 67 on January 1st 2021 will not proceed. A Pensions Commission will be established.
- The Parent’s Benefit will be extended by a further three weeks
- Fuel allowance – up € 3.50 per week to € 28 per week.
- The €425 earnings threshold for the One-Parent Family Payment is to be removed.
- The Widowed or Surviving Partner Grant will be increased by €2,000 to €8,000
– Two major assumptions underpin the budget: that there will be no trade deal between the EU and the UK, and secondly that Covid 19 will continue to exist next year in the absence of a vaccine
– Some €2.1 billion will be held in contingency and will be made available as needed to respond to the challenges posed by Covid-19
– Some €340 million of voted expenditure will be spent on Brexit supports in 2021. This includes an additional allocation for compliance expenditure in 2021.
– This will apply for work at ports and airports and provides for an additional 500 staff bringing the total provision for approximately 1,500 for operationalising checks ahead of January 1st 2021
– A further €600 million will be allocated to the capital budget in addition to a planned increase of €1 billion for 2021 under the National Development Plan
– The Department of Finance is forecasting a loss of 320,000 jobs in 2020. Some 155,000 will be recovered next year. Budget 2021 forecasts a deficit of €20.5 billion but there is a “high level of uncertainty” about future forecasts
HOUSING, THE HOMELESS AND OTHER SOCIAL HOUSING BENEFITS
- Help to Buy scheme retained for first-time buyers of new homes by way of a 10% income tax refund. Maximum payment is € 30,000 and only eligible up to a purchase price of € 500,000. The rebate will be of income tax paid over the previous four years and only purchases of new homes will qualify. The applicants must also take out a mortgage of 70% of the purchase price to qualify. This scheme is retained to December 2021.
- Homeless services budget increased by € 22m to € 188m plusthe introduction of a Cold Weather
- €3.3bn in funding for housing, with 12,750 new social housing units by 2021 still the target and 9,500 of them built in 2022 by the local authorities and approved housing bodies.
- There will also be a total of €65 million available to fund deep retrofitting of social housing stock
- €210 million is being made available for lending under the Rebuilding Ireland Home Loan Scheme.
- Spending of €2.4 billion in 2021 will support an additional 15,000 Housing Assistance Payment tenancies and 800 Rental Accommodation Scheme tenancies with €110 million is being allocated to an affordability package for 2021 to provide for affordable housing and cost rental schemes
- Fuel allowance increases by € 2 per week to € 24.50 per week
INDIRECT TAXES, EXCISE AND OTHER DUTIES
- Tobacco – up 50 cents per pack of 20 – now costing € 14 per pack, with 30g packet of rolling tobacco will now be more than € 16 – effective from midnight 13th October 2020 It means if you smoke a pack of cigarettes a day and you are on the 40% tax rate, you will need to earn c. € 1,062 EVERY month to maintain your habit ! Ouch !
- Alcohol – no increases on beer spirits or wines
– Over €270 million will be spent to support up to 20 higher education building projects. Some 145 school building projects will be delivered
– There will be funding of €132 million for the National Broadband Plan
– Minister for Education Norma Foley is to bring down pupil teacher ratios to 25:1 with the creation of 600 new teaching positions
– There will be a new €50 million fund to provide a once-off financial assistance to full-time third-level students. The measure is likely to be worth €250 to each student
- For self-employed recipients of the Pandemic Unemployment Payment (PUP), an earnings disregard will be introduced to allow them to take up intermittent work without losing their benefit ( up to € 480 per month will be disregarded )
FOR FARMERS, FARMING AND THE AGRI-FOOD SECTOR
- The farm consolidation stamp duty relief is to be extended by two years to 31 December 2022.
- Consanguinity Relief on agricultural land has been extended by three years to 2023.
Consanguinity Relief is critical in some individual family situations and can vary where farmers are not in the position to inherit the farm as a young trained farmer.
The Consanguinity Relief allows them to inherit assets and not pay the full rate of stamp duty, which currently stands at 7.5pc, but instead pay 1pc.
- VAT – Increase of the farmers flat VAT rate addition from 5.4% to 5.6% with effect from January 1st.