Noonan Delivers Tax Changes In Irish Budget

By Editorial 08 December, 2011

Irish Finance Minister Michael Noonan has delivered a comprehensive austerity budget comprised largely of tax measures designed to raise almost EUR2bn (USD2.7bn) in additional revenue.

Following on from Public Expenditure Minister Brendan Howlin's announcements on December 5, Noonan delivered the budget's tax related measures on December 6. The government is aiming, in line with its commitments to the European Union (EU) and the International Monetary Fund (IMF), to slash public spending in 2012 by EUR2.2bn and secure EUR1.6bn in extra tax receipts. As Noonan put it: "The task of this government is to regain control over Ireland’s fiscal and economic policies, to grow the economy again and to get people back to work".

He argued that, in this endeavour, the government has made a strong start. Noonan stressed that political stability has been restored, and that many of the conditions of the EU/IMF Programme have been successfully renegotiated, contributing to the restoration of Ireland’s reputation abroad. He noted that a gradual economic recovery has begun to take hold, with the Department of Finance forecasting an a 2.5% increase in nominal GDP next year, with growth driven by the exporting sector.

Turning to the tax measures both included and absent in Budget 2012, Noonan made clear that the government will not bow to any pressure to raise Ireland's 12.5% corporate tax rate. He said: "The government have successfully protected this rate even under international pressure and given our fiscal state...I want to say to our friends in the multinational sector who continue to invest so strongly in Ireland and Europe, there will be no change in Ireland’s 12.5% corporate tax rate. We promised this in the Programme for Government and we will fulfil this commitment."

Also pledged in the coalition's Programme for Government was that there would be no increase in income tax. As such, income tax rates, bands and credits remain unchanged. Noonan said: "I want to make clear that there will be no increase in income taxes in this Budget – no increases in rates, no narrowing of bands and no reductions in personal tax credits. Wages and salaries in January will be no less than wages and salaries in December, so people will continue to have discretion on how they spend their income."

The fact remains, however, that in spite of these promises, the government is also committed to GBP1.6bn in tax hikes. Noonan said that, in carefully considering the options available, the government had concluded that direct taxes, such as income tax, have a bigger impact on jobs than indirect taxes. Consequently, the bulk of the Budget's tax related measures relate to value-added tax (VAT) and capital taxes.

Responding to his critics, who attacked the plans after a draft of the Budget was leaked last month, Noonan said there were few alternatives. "Are they suggesting that income tax should be increased or that we should welch on our commitment that the 12.5% corporate tax rate is sacrosanct? If they are, we fundamentally disagree with them," he said.

Consequently, the VAT rise, included in the leaked document, will go ahead. The previous government had agreed with the EU and the IMF to increase VAT by 2% in two stages: 1% in 2013 and 1% in 2014. The coalition is now bringing these increases forward to 2012, taking the rate to 23%. However, it has pledged that the rate will not be increased beyond 23% during the life of the government. The 9% reduced rate introduced in the Jobs Initiative for certain tourism related services, along with the 13.5% rate applicable to home heating oil, residential housing, general repairs and maintenance, will remain the same.

The other key tax measures unveiled by Noonan were as follows:

Concluding his statement, Noonan said that the government will not repeat the mistakes of the past, and will meet its international commitments, and urged that the Budget "balances the need to restore confidence in Ireland's fiscal position with the key objective of supporting economic growth that delivers jobs."

Tags: Expatriates | Tax | Investment | Pensions | Value Added Tax (VAT) | Ireland | Interest | Fiscal Policy | Employees | Budget | International Monetary Fund (IMF) | Corporation Tax | Tax Credits | Tax Rates | Carbon Tax | Stamp Duty | Individual Income Tax | Services |


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