Budget 2016 was expected to be a giveaway budget and it was, at least compared to the previous 7 budgets.  The last budget of a government who have survived for the full 5 year term was always bound to be a good one. It is clear from todays speeches that re-election is high on the agenda of this government, however I was surprised that they showed a little bit of restraint.

So do we have reasons to celebrate? Of course we do. Each and every one of us will have an increased take home pay in 2016. Minister Noonan mentioned that broadly speaking everyone would receive the equivalent of an additional weeks wages in 2016. The only tax increase was on a packet of cigarettes which increased by another 50 cent.  

The following are some of the good news stories from Budget 2016:

Tax Cuts

• USC rates will decrease from 1 January 2016. The 7% rate which is on income from €18,669 to €70,044 is being reduced to 5.5%. The lower rates have also decreased from 3.5% to 3% and from 1.5% to 1%. The USC rate of 8% on income over €70,045 stays the same. What this essentially means is that any person earning less than €70k per annum will be on a marginal rate of tax of 49.5%.

• The self employed and small business owners will now get a tax credit of €550 per annum. This credit will be equivalent to the PAYE credit of €1,650. So it’s not quite the equivalent! However Minister Noonan has mentioned that if you keep him in power he may increase the credit if finances permit.

• The home carers credit has increased from €810 to €1,000. This credit is available to "stay at home" parents earning less than €7,200 per annum.

Employers

• Minimum wage has increased to €9.15 per hour.

• Employers PRSI has improved but unfortunately only marginally. The lower rate of 8.75% will now apply to all employees earning less than €376 per week. This is an increase from €356 per week previously.

VAT

• Thankfully the 9% VAT tourism rate has been retained. From the Ministers speech it appears that the rate hasn’t been extended to any additional activities.

Childcare

• Child benefit is to increase by €5. Free pre-school childcare is to be increased from 1 year to effectively 2 years. Free GP care for under 12s is also to come in, if GPs don't object...

• Finally fathers will now be entitled to 2 weeks paternity leave, this will come into force from September 2016.

SME Sector (including agriculture)

• Commercial Motor tax has been substantially reduced and this will have the greatest benefit for larger haulage carriers with the annual rate being reduced to €900 for vehicles in excess of 12,000kgs.

• The government have looked at the agricultural sector again as they did in last year’s budget. They have extended general stock relief, stock relief for young farmers, stock relief for partnerships and the stamp duty exemption for young farmers until 31 December 2018. They are also introducing a mechanism for a farm to transfer to a family partnership tax efficiently. More details on this will follow in the Finance Bill.

• A revised Entrepreneurs relief has been announced. This is good news as the previous relief probably only applied to a handful of people in Ireland. The new relief sees the capital gains tax rate on disposals of businesses reduced to 20%. However there is a lifetime limit of €1m on the amount of proceeds one can receive. While the relief is to be welcomed, it is still a long way off the UK regime where the maximum lifetime proceeds are at €10m and the rate of tax is 10%. It is worth noting that the lifetime limit for the UK relief began at £1m in 2008 and has increased over the years, so there is potential for our current limit to increase.

• Retailers will be happy that the budget reduced fees in relation to credit and debit card payments. This will be reviewed by the government as the assumption here is that the reduced costs will be passed on to the consumer.

Corporation Tax

• With regard to corporation tax they have retained the 3 year tax relief for start-up companies, which sounds good on paper but is largely ineffective.  More information on the Knowledge Development Box, which was mentioned last year, will be forthcoming in the Finance Bill but the Minister mentioned that the rate of tax on profits arising from patentable inventions will be 6.25%.    

Miscellaneous

• Pension fund levy of 0.15% will definitely cease by 31 December 2015.

• The home renovation incentive is to be extended until 31 December 2016. This is where you can get a tax credit for works done on your family home and on rental properties.

Inheritance Tax

• The tax free threshold on gifts/inheritances from a parent to a child has increased from €225,000 to €280,000. This is a considerable increase and is to be welcomed. Although I would have thought a relief aimed solely at family homes would have been more equitable. There was no change to the rates or to the other thresholds.

Landlords/Tenants

• We had expected to hear a raft of changes to the operation of the rental market, however there seems to have been disagreement between Minister Noonan and his current colleague Minister Kelly, therefore any proposed changes will be announced separate to the budget.

Summary

One could ask whether this “giveaway” budget was a correct and sensible one?  Some would argue that the country should be longer down the road of recovery before taxes are reduced. Some would also argue that any additional monies should be spent on the homeless crises or on health for example. However spending monies in these areas, while being good for the country, doesn’t necessarily win votes. Therefore the government have concentrated on lowering taxes as this is the one sure way of them keeping their jobs.

In fairness some of the proposals regarding employment and entrepreneurs are positive and long overdue. These types of tax cuts are aimed at individuals who create jobs for the likes of you and I and are most welcome. Unfortunately the reliefs for entrepreneurs are still a bit off the UK and therefore we have left ourselves susceptible to the country’s finest people moving away from Ireland, but it’s a step in the right direction.

Overall this can only be described as a positive budget, especially in the short term. Time will tell whether it was a sensible one. My initial reaction is that it is slightly reckless. Too much too soon. It looks like we are heading down the road of repeating our past mistakes and until the political system changes in Ireland I can’t see how that will ever be avoided.

For now though enjoy the extra few quid in your pocket.