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Better to preserve resources than cut taxes in Budget 2020 – Donohoe

Better to preserve resources than cut taxes in Budget 2020 – Donohoe

Minister for Finance Paschal Donohoe has said it will be far better off preserving resources to deal with the possibility of a no-deal Brexit, rather than reducing taxes in Budget 2020.

Yesterday, Cabinet agreed to base Budget 2020 on the assumption that there will be a no-deal Brexit, with Mr Donohoe ruling out any reductions in personal taxation in the upcoming budget.

Speaking on RTÉ’s Morning Ireland, Mr Donohoe said he will not make the mistake of cutting income tax rates now, only to have to increase them in the next budget.

Mr Donohoe said there will be a social welfare package in next month’s budget.

This, he said, will need to be carefully targeted and focused in order to protect the most vulnerable.

He said he is actively investigating how carbon tax can be increased and the different options in relation to it.

He added, however, no decision has been made.

Mr Donohoe said overruns last year were not acceptable and things will be done differently this year.

He also said plans are in place to address the issue of pay for Defence Forces.

Meanwhile, Sinn Féin’s Finance spokesperson Pearse Doherty has said with a no-deal Brexit increasingly likely, Mr Donohoe should be setting the budget “with those parameters in mind”.

Also speaking on Morning Ireland he said a rainy day fund is not enough and instead there should be a €2 billion Brexit stabilisation fund to support the sectors and regions that will be worst hit.

He said with or without a Brexit deal, a pot of money is needed to support certain sectors in Ireland once the UK leaves the EU.

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Ireland is not a tax haven – Dept of Finance

Ireland is not a tax haven – Dept of Finance

Ireland does not meet any internationally recognised standard of being a tax haven, according to a statement from the Department of Finance.

The department is reacting to a report in today’s Irish Independent detailing new figures which show that US mulitnational companies based in Ireland, made €74 billion in profits in 2017.

This represents a third of the total profits made by US multinationals in Europe that year.

The figures are contained in the US government’s Bureau of Economic Analysis annual report.

It prompted a tweet from Professor Gabriel Zucman of University of California, Berkeley, who wrote, “Ireland remains the #1 tax haven”.

A spokesperson for the Department of Finance, said, “In an era of declining tax rates, we have consistently maintained our 12.5% rate of Corporation tax to encourage real and substantive investment in the economy. It is applied transparently to domestic and international companies with real substantive operations in Ireland.”

The spokesperson said the corporation tax rate provides a stable economic environment which ensures employment for citizens and provides significant levels of taxation which provide for the needs of Irish citizens.

“The internationally-accepted definition of a tax haven considers rate, secrecy and substance, and by that definition Ireland is not and never has been a tax haven. A rigorous peer review showed that the country is fully compliant in all aspects of exchange of information and transparency,” the spokesperson said.

Ireland has three corporate tax rates, 12.5% on trading income, 25% for investment income and a 33% rate for capital gains.

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Tax rises needed to prevent economy overheating – ESRI

Tax rises needed to prevent economy overheating – ESRI

The Economic and Social Research Institute says the economy is now growing so strongly that the Government should increase taxes to avoid overheating, notably through increasing taxes on carbon and property.

But it also says the Government should avoid tax increases if there is a no-deal Brexit.

In its latest quarterly bulletin, the ESRI says the economy should grow by 4% of GDP this year and 3.2% next year.

It expects unemployment to average 4.5% this year, falling to 4.1% next year.
Private consumer spending is expected to grow by 2.5% and 2.3% respectively, but Government current spending will grow by 7% this year and 5.3% next year.

Investment is forecast to grow by 7.1% this year and 7.6% in 2020, while inflation is expected to be 1.4% and 1.7% in those years.

The Irish economy is growing strongly and is probably performing at full capacity.

Unemployment is down to 4.5%, wages are growing at about 4%, and the Government is spending more, especially on a very large investment programme.

Such is the pace of spending and output growth, the ESRI says the Government ought to take some of the heat out of the economy by raising taxes, particularly carbon tax and property tax, leaving taxes on labour alone so as not to harm employment.

The authors write: “Given the expected increase in capital expenditure over the short to medium term, it may be advisable to run an explicitly counter-cyclical fiscal policy and instigate a mildly contractionary budget.

“Taxation increases in the area of carbon taxes or residential property taxes could be used to reduce some of the demand – side pressures which are now evident in the domestic economy.”

It also warns that the planned increases in the Government’s capital programme for building infrastructure needs more careful management.

It said avoiding cost escalations such as the National Children’s Hospital, requires “improvements in the process of overseeing such projects are required” to ensure the initial estimates of the project costs are much closer to the final costs.

But these projections assume Britain stays in the EU. In the event of a no-deal Brexit, the economic shock will cut the growth rate by about two thirds.

Indeed, the ESRI says the prospect of Brexit is already having an impact on the economy by depressing consumer confidence and spending.

It says the usual determinants of consumer sentiment, notably unemployment and inflation, are both extremely low, and cannot account for the sharp deterioration in consumer sentiment observed over the past eight or nine months.

Given the past data on the link between sentiment and spending behaviour, the ESRI believes the economy has already been adversely affected by the amount of attention on Brexit and the uncertainty surrounding it.

If there is a no-deal Brexit, it says contractionary budget policy would have to be abandoned in favour of measures to support the economy.

All of which makes framing October’s Budget extremely difficult.

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Relief as property tax changes delayed for a year

Relief as property tax changes delayed for a year

Local Property Tax (LPT) rates for householders are to be frozen for another year the Government decided late last night.

Homeowners won’t see any change in their LPT bills until 2021, and tens of thousands of householders who currently benefit from exemptions will continue to do so for another year. The decision means any changes to LPT will be pushed beyond the next general election which is expected by summer 2020 at the latest.

Fianna Fáil’s finance spokesman Michael McGrath argued it’s “a classic example” of “kicking the can down the road”. He claimed it was “about the electoral cycle” and was a sign of “weak government”.

Finance Minister Paschal Donohoe briefed Cabinet on his department’s long-awaited review of the LPT. At present LPT rates are based on 2013 valuations.

There have been fears that the tax will increase significantly due to rising house prices if the way LPT is calculated is not changed. It was due to be re-evaluated in November.

The department’s review group presented five alternative methods of calculation to the current regime, each of which would have different ‘winners’ and ‘losers’ in terms of how they would affect households. Mr Donohoe is referring the group’s report to the Budgetary Oversight Committee for its consideration in a bid to get cross-party consensus. He last night said his aim was that any increases “should be modest, affordable and fair”.

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