Some of my initial thoughts on (a rather unimaginative) Budget 2013:
Local Property Tax
I predict that the new Local Property Tax will create much difficulty for the Government within the coming year.
While Revenue will provide “valuation guidance”, this is likely to be tailored more to their own objectives (ie, raise as much tax as possible) than those of the property owner (the opposite) and will not be a particularly appetising option. The alternative option to hire “a competent valuer” to value one’s property will rankle with many people, especially as auctioneers and valuers:
- will, (quite properly), charge a fee for their services.
- as a group, have a long record of overvaluing properties (one of the main contributors to the Tiger-era bubble)
- have a vested interest in renewed property price inflation.
Given the mess that the local councils have made of collecting the Household Charge (HC) and NPPR, it is quite correct that the new tax will be collected by the Revenue Commissioners. However, as with the HC & NPPR, I think it is a serious error to make the owner, not the occupier, liable. Quite simply, I believe that people should be encouraged, within reason, to own their own homes and the property market is likely to remain in the doldrums if individuals and families are incentivised to rent rather than own their homes.
The €50,000 ‘bands’ for the property tax are too narrow and in my view are a temptation to evasion. A wider band, of €100,000 or €150,000 would have generated the same tax revenue with a lot less scope for undervaluation.
It seems that a minimum rate of €90 will apply to properties valued under €100,000. This may be okay for someone living in a €100,000 property (which may be more numerous than the Minister expects, given the quoted prices on local and online property listing), but a €90 charge is scarcely justifiable in the case of a person living (or more precisely existing) in poverty in a semi-derelict, low value property.
Among the Property Tax payment options is the facility to pay in cash. This is rather ironic in the light of Revenue’s stated determination to stamp out the cash economy and the government’s wider policy to move towards a cashless society.
The facility for voluntary deferral of the Property Tax entails an interest charge of 4% p.a. This is not the highest interest charge on the planet, but given the fact that people who opt for deferral will only be doing so on the basis that they are already in straitened circumstances, the fact that they are facing an additional interest charge will only add to their woes.
It is good that the Household Charge is being abolished from 1 January 2013, but it is an absolute, and gratuitous, disgrace that the NPPR Charge on non-owner occupiers will be charged for 2013 in addition to the Property Tax. Another example of double taxation.
I predict that the much touted “10 Point Tax Reform Plan” for SME’s will make little or no difference to almost all firms.
The 3 Year Corporation Tax Relief for Start Up Companies has already been significantly diluted in earlier Budgets, and I honestly see little point in continuing with it, except perhaps for political window-dressing purposes.
The €250,000 increase in the VAT cash receipts basis threshold (from €1 million to €1.25 million) is indeed a welcome measure, as is the doubling of the “initial spend” eligible for the R&D tax credit (from €100,000 to €200,000).
However the extensions to the Foreign Earnings Deduction for work related travel will need to be dramatic if they are to be of any use to Irish businesses. The Budget 2012 measure which allowed for this Deduction to apply only for travel to Brazil, Russia, India and China was laughably restrictive.
News of a long-awaited diesel rebate for hauliers, to apply from 1 July 2013, is very welcome, but the devil will be in the detail.
I fear that the new “PlusOne initiative” to employ long-term unemployed workers will be more window dressing. The Irish economy needs small businesses and sole traders to hire more workers. If every one of our 270,000 sole traders (as per 2010 figures) and many more small companies, employed one extra person next year, our unemployment problem would be well on the way to being resolved. However this is unlikely to happen and I fail to see the logic in telling a young graduate (or even a not-so-young non-graduate) that they must rot on the dole for 6 months before an employer can be incentivised to hire them.
The extension of the farmers’ 25% & 100% Stock Relief incentives is a perennial feature of almost every Budget. Sadly this Budget contains little else for the agricultural sector. The Stock Relief concession for beef production farm partnerships, and the new farmland Capital Gains Tax relief for farm restructuring purposes are welcome but will have limited impact.
Film Industry & Tourism
The Budget promises an extended Film Tax Relief Scheme until 2020, with a new “tax credit model” in 2016 which will replace the current ‘‘high earner’ investor-driven incentive. Again the devil will be in the detail.
The 9% VAT rate for the tourism industry will continue in 2013, but will this survive post-The Gathering into 2014?
The Property Tax exemptions for “new or previously unoccupied homes” by 2016, and for 2013 first-time buyers, underline what I see as the key structural problems of the Property Tax, ie discouraging first time buyers and others from buying or trading up. The exemption for residences in “unfinished estates” may prove controversial if this is applied in practice in a fashion as arbitrary as the corresponding Household Charge exemption. Some people living in luxury estates found themselves unexpectedly exempt from the HC on the basis that their estates included a couple of vacant sites or unsold homes, while their neighbours in less salubrious neighbourhoods had to stump up the €100 charge.
The continuation of tax relief on pension contributions at the 41% marginal rate of tax is welcome and a small, if significant, victory over the reactionary voices calling for the effective destruction of pension cover for private-sector workers. The measure to curb the relief on on pension pots projecting income of over €60,000 per annum is a sensible one, as are the scrapping of the 2012 private pension levy after 2014 and the ending of the reduced USC charge for high-earning over-70s.
I remain unconvinced of the wisdom behind allowing individuals to withdraw up to 30% of their AVCs. Withdrawals will be charged income tax at marginal rates and I fear that many people will erode their long-term financial security in a desperate attempt to pander to unreasonable demands from their banks or other lenders.
The increase from €253 to €500 in the minimum annual self-employed annual PRSI contribution is a reasonable move, as such contributions are invariably good value for self-employed people, yielding a contributory old age pension amongst other benefits. However the increased cost will by its nature exclusively hit low-income self-employed people many of whom will have to cope with property tax and other financial pressures.
The abolition of the weekly €100 PRSI-exempt allowance for employees makes sense from a crude mathematical viewpoint, but again will impact, disproportionately but not exclusively, on low earners.
From 2014, PRSI will apply to employees’ rental income, investment income, dividends and deposit interest. In my view this is long overdue, as it has already applied to the self-employed for many years.
The only Income Tax measure mentioned in the Budget Speech relates to Maternity Benefit, which will be treated as taxable income from 1 July 2013. The question remains as to why Maternity Benefit remains exempt from the USC.
There is a most welcome absence of the threatened increases on excise duty on diesel and petrol.
The excise duty hikes on beer, cider and wine will do nothing for our struggling hospitality sector in the year of The Gathering, and makes something of a mockery of the special 9% VAT rate on tourist enterprises.
The rises in the Capital Gains Tax (CGT) & Capital Acquisitions Tax (CAT) rates from 30% to 33%, and the cut in the CAT threshold, each make sense at first glance but ignore the fact that they both discourage property owners sell or gift properties. As Minister for Finance, Charlie McCreevy, sharply increased the revenue from both tax headings by cutting the rates to 20%. This experiment is worth repeating and might yield surprising results.
what is the marginal tax rate for a person who has been unemployed for over 3 years in regard to the early withdrawal of avc please………
The marginal rate will be 20% if one’s entire income (including the AVC withdrawal) is below €32,800 in 2013. (€41,800 for single-earner family). It will be 41% if the income exceeds these bands.
Full tax bands and rates for 2012 are here: http://www.revenue.ie/en/tax/it/leaflets/it1.html#section3 The 2012 bands remain unchanged for 2013.
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