Budget 2023 highlights
As we move past the pandemic and the final supports from that crisis make their way through this system, Budget 2023 focus was on the economic backdrop of an inflation rate unseen for a long number of years driving up the cost of living in particular cost of energy as result of the terrible war in the Ukraine. For these reasons Minister Donohoe has referred to this as a "Cost of Living Budget" and while the purpose of this budget is to provide assistance now it is also intended to be mindful to ensure the country has "sufficient reserves for what the future may yet bring".
Economically the country faces into the above issues with close to full employment, bumper exchequer returns and a €1billion government surplus. However, these optimistic domestic indicators are tempered by the above mentioned inflation rate and aggressive monetary policy that will likely trigger global recessions.
The Minister outlined concerns in relation to the sustainability of some of the government tax revenues, in particular corporation tax and some VAT receipts and plans to ensure that these potentially non-recurring "windfall" tax receipts are not used on permanent expense items but rather split between temporary measures and the replenishing of the National Reserve Fund.
Interestingly, the Department of Finance will now employ a new metric, GGB star, to monitor the public finance. This metric seems to exclude any excess receipts from the Budget Deficit/Surplus calculation.
Modified domestic demand ("MDD") is expected to result in growth of 7.7% in 2022 which is 2% higher than expectations this time last year. However, forecast for next year expect this number to drop to 1.2% with inflation remaining as high as 7% due to expectation that gas prices will remain high.
The Minister also announced a number of reviews of various tax measures and approaches including;
- further analysis of The Tax Strategy Group report in relation to the third rate of income tax will commence,
- the commitment to the development of a medium-term roadmap for tax reform following the Report of the Commission on Taxation and Welfare and
- a review of the REIT, IREF and Section 110 regimes.
The highlight of the changes for business is the introduction of the Temporary Business Energy Support Scheme ("TBESS") which attempts to assist businesses with the rising cost of energy. Some changes are flag in relation to the refundable element of the R&D Tax Credit which should provide cashflow benefits for companies.
Again, there has been some focus on housing initiatives with the extension of the Help-to-Buy scheme. Also, the introduction of a Vacant Homes Tax, the extension of the Residential Development Stamp Duty Refund Scheme and an increase on the pre-letting expense cap designed to stimulate supply of residential property.
We welcome the announcement that VAT on newspapers and news periodicals will reduce from 9% to 0%. This is a measure we have supported and advised industry representative bodies in getting this important financial support for the industry over the line.
Being a "Cost of Living Budget" the most significant measures are those aimed at "putting money in the pocket". Significant increases in the Standard Rate Cut Off point, increases in the income tax credits, an increase in the Small Benefit Exemption, and the re-introduction of a rental tax credit are all likely to be felt by individuals.
Overall Budget 2023 is trying to get the balance between support individuals and business in the current inflationary environment without introducing measures that would fuel further inflation. One may feel more could have been done but in specific areas, however, in many way this budget feels an appropriately consistent approach to the steady progress that the economy has made in the last number of years.
We hope you find our commentary on Budget 2023 insightful and informative. If you have any questions on what the measures mean for you or your business, please contact a member of the BDO Tax Team.
View our in-depth industry analysis on the impacts of Budget 2022 on the Irish economy below:
Budget 2023 & Agri-Business Overview