Budget 2022 tax strategy group papers were released last week from the Department of Finance, outlining the various options being considered by Government in the lead-up to Budget 2022, all to be announced on budget day on 12 October.
Income tax and USC remain the single largest source of tax revenue to the Exchequer.
In 2020, income taxes of circa €22.7bn were raised for the Exchequer, which represents almost 40% of the total tax take. This figure included USC of €3.8bn.
Social Insurance Fund deficit
The tax strategy group papers cover all areas under consideration by Government, suggesting increases in PRSI payments for employees, employers and the self-employed from 2023.
Increases of 1.5% in most PRSI rates are needed, to help close the increasing gap in the social insurance fund (collects monies from employed people and funds social insurance payments), due to the pressures of the pandemic.
This fund has a projected deficit of €3.8bn this year in comparison with a €3.9bn surplus in 2019.
The papers outline that by increasing PRSI tax take incrementally each year, extra revenue of €3.6bn annually would be created by 2027.
Whether by increasing rates or thresholds or introducing other reforms, this is one area that will be given serious consideration by Government.
The existing help-to-buy scheme is due to expire at the end of the year.
This scheme provides financial support for first-time buyers buying or building new homes and forms part of the range of housing-related commitments set out in the programme for government.
The tax strategy group papers outline five options for consideration and appears to lean towards a continuation of the scheme, but possibly with the introduction of a new end date and/or tapering of the reliefs involved.
Capital gains tax (CGT)
Currently, this tax is charged at 33% on any profit made on the sale of an asset.
The papers contain a limited discussion on a potential reduction to CGT and concludes that there doesn’t appear to be a compelling case for making a significant reduction to this tax currently.
Capital acquisitions tax (CAT)
The papers outline the effect of whether this inheritance/gift tax is increased or reduced (currently 33%) and the cost of increasing the current group thresholds.
It concludes these are to be considered further, but no indication as to whether or not any changes will be made.
It does suggest consideration is being given to an increase in the small gift exemption to €5,000 (currently €3,000) in order to encourage transfer of wealth, in particular as there has been such a build-up of household savings during the pandemic.
As per the papers, there are various options being considered with regard to residential property, such as reducing the cut-off point for the 2% rate to €750,000 or apply the higher 2% rate of stamp duty to the full value of the property, and/or introduce a surcharge for non-residents acquiring residential property.
The papers indicate many areas of agri-tax issues related to stamp duty which are under consideration
The papers indicate many areas of agri-tax issues related to stamp duty which are under consideration.
Areas such as the young trained farmer stamp duty relief (due to lapse at year-end), the necessary educational qualifications process and the age limits applicable to certain agricultural reliefs are all being discussed.
All of these reliefs encourage intergenerational farm transfers and the views of the three main farming bodies (the IFA, ICMSA and Macra na Feirme) have been sought on these matters.
There is no doubt that some really tough decisions in many areas will need to be made by Government over the next few weeks prior to budget day.