Budget 2019 was delivered by the Irish Government against a backdrop of a buoyant domestic economy, continued improvement in employment rates and record tax receipts. These positive economic indicators are tempered by the serious challenge of Brexit that is facing the country.
In his speech, the Minister strongly reaffirmed the government’s commitment to the 12.5% corporate tax rate providing certainty to groups for future investment.
Budget 2019 along with ‘Ireland 2040’ significantly increases expenditure across a range of sectors, including capital expenditure, health, agriculture, rural Ireland, and education.
With Budget 2019, it looks as though the Minister is calling time on a decade of austerity that followed the financial crisis. In an ever-changing international tax environment, the government is looking to reinforce Ireland’s commitment to international best practice while providing the infrastructure to ensure the economy continues to grow.
Brexit will certainly be a challenge and the success of the measures announced in this budget will certainly be tested. That said, the outlook is positive and Ireland’s focus, as Minister Donohoe put it, is on “maintaining a competitive, outward-facing business environment.”
Ireland Inc. and Foreign Direct Investment (FDI)
As Minister Paschal Donohoe mentioned in his Budget 2019 speech, the international tax landscape is changing rapidly. As outlined in Ireland’s Corporation Tax Roadmap last month, adoption of changes arising from the OECD Action Plan to address BEPS and the EU’s Anti-Tax Avoidance Directives will be implemented in the coming year. The Minister outlined the government’s focus on maintaining a competitive, outward-facing business environment with a transparent and sustainable tax regime.
For multi-national companies looking to setup in Ireland, the extension of the start-up relief regime until the end of 2021 is a huge plus. With the many advantages Ireland holds over global competitors. Minister Donohoe looked to reaffirm the Government’s commitment to stability and certainty for companies based here.
Changes to Irish exit tax were also announced, in line with the EU’s Anti-Tax Avoidance Directive. Taking effect immediately. This regime taxes unrealised capital gains where companies migrate or transfer assets abroad in certain circumstances such that they fall outside the scope of Irish tax. The rate for the new ATAD compliant exit tax will be 12.5%.
Budget Brexit proofing
Minister Donohoe remarked that the Government and his department have been grappling with the “political, economic and diplomatic challenge of our generation.”
The Department of Business, Enterprise and Innovation is receiving €950m in 2019, increasing to €970m by 2021. This budget sees over €110m for Brexit measures across several other Departments, including funding for customs requirements and border-area initiatives.
A Future Growth Loan Scheme for SMEs forms a major part of government policy to “Brexit Proof” the Irish economy. It will build on the €300m, invested through the Brexit Loan Scheme last year, in a move which looks to soften the impact of the UK’s exit.
The scheme will also provide businesses with the opportunity to borrow for up to 10 years to support capital investment. The Strategic Banking Corporation of Ireland will administer the project with 40% of the funding going to the agri-food sector – a sector particularly exposed to a Brexit fall-out. Local Enterprise Offices and global enterprise agencies will also receive further resources as the Brexit D-Day approaches.
Two further measures by the Government will look to mitigate the challenge of Brexit. A Rainy-Day Fund is to be established to protect the economy against larger shocks similar to the banking crash of 2007. It will be capitalised with €1.5bn from the Ireland Strategic Investment Fund, along with an annual contribution from the Exchequer, beginning 2019.
A €300m Human Capital Initiative fund has also been earmarked for two years’ time. It will form a major part of the Government’s response post-Brexit.
The Department of Education and Skills sees an increase of 6.7% in its funding to €10.8bn. This will allow for almost 1,300 additional posts in schools.
In general terms, the standard capitation rate per pupil will rise by 5% in 2019. An additional €196m for capital expenditure will further facilitate the upgrade of ICT infrastructure as well as the creation of up to 18,000 additional permanent school places. The Government is also looking to reach ‘substantial completion’ of 45 large scale school projects in 2019.