BUDGET 2022 HIGHLIGHTS
As one would expect, the COVID-19 pandemic provided much of the economic context to Budget 2022 with the medium-term strategy to restore public service, phase out COVID-related spending and repair the public finances.
The economy has shown strong signs of recovery with an 8.5% growth in Modified Domestic Demand in the second quarter leading to predicted growth of 5.25% for the whole of 2021 and 6.5% for 2022. Tax receipts have remained strong particularly in VAT and income tax. However, Minister Donohoe noted that while Budget 2022 is designed to bring the national debt to just under €240 billion, this would not be a good place to be when interest rates start to rise and, therefore, more work is required to get debt levels back to a sustainable level.
Minister Donohoe announced that the Government had made the “historic decision” to join the global political agreement on corporation tax which means that Ireland will apply a new minimum effective rate of 15% on certain corporate taxpayers. This well flagged decision is a significant shift from the long re-affirmed commitment to the 12.5% rate. However, its application will be limited to large entities with the 12.5% rate retained and continuing to apply to corporates with revenues below €750m. The Minister re-emphasised that even with these new changes, Ireland remains a competitive and attractive location for investment.
Other areas that dominated Budget 2022 are measures related to the Green Agenda and Housing.
On the Green Agenda, the previously agreed increase in carbon taxes, a number of extensions to existing schemes and changes to the VRT bands have been included.
Many of the Housing initiatives are expenditure focused with an emphasis on increasing supply. From a taxation perspective, a new zoned land tax is being introduced to encourage land to be developed into residential property.
The additional commitment of funds to the Innovation Equity Fund and the introduction of a Digital Gaming Tax Credit will be welcomed by the innovation community.
The main changes to the personal tax regime are an increase in the income tax standard rate band by €1,500 and a €50 increase in standard income tax credits.
Overall Budget 2022 provides some positive news for Ireland’s business community. The retention of the 12.5% rate for the majority of domestic companies is an important development. However, we believe that much more needs to be done for entrepreneurs particularly in the area of high personal tax rates on both income and capital gains. Competitive tax rates are a key element for growth, investment and jobs in the economy.
We hope you find our commentary on Budget 2022 insightful and informative. If you have any questions on what the measures mean for you, or your business, please contact any member of the BDO tax team.
View our in-depth industry analysis on the impacts of Budget 2022 on the Irish economy below:
Tourism & Hospitality Sector Overview
Digital Gaming Tax Credit