12 Oct 2021

Budget 2022 – Driving Sustainable Growth

By Kevin McLoughlin

EY Ireland Head of Tax

Tax leader, Cyclist and music fan

12 Oct 2021

Minister for Finance Paschal Donohoe announced the details of Ireland’s Budget 2022 on 12 October, setting out the Government’s taxation and spending plans. Find all the real-time insights and analysis here on what this budget means for Ireland, organisations and individuals.

Budget 2022 will be framed against a contrasting backdrop of positives and challenges. However, our national economy that has shown an amazing ability to survive the pandemic which at the outset resembled a once-in-a-generation economic threat.

If you’d like to learn how Budget 2022 impacts you and your business, please continue to check back on this page throughout the day, for real time insights, analysis and commentary as the Budget is announced.

For all Budget related documents refer to Department of Finance Budget 2022.

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Reaction Commentaries

  • Kevin McLoughlin, Head of Tax, Tax and Law, EY Ireland

    Overall comment

    “The Minister for Finance Pascal Donohoe delivered his Budget 2022 speech against a backdrop of COVID recovery. With most of the economic performance indicators coming in ahead of forecast, the Minister had more at his disposal than he might have expected. Two important measures I was pleased to see today were the extension of the Employment Wage Subsidy Scheme (EWSS) to April 2022 and the inflation combating standard income tax band and tax credit increases. At an estimated cost of over €1.7bn, these two measures are very welcome from a broad business perspective as we continue our journey of recovery.

    “Together with further enhancements to our tax competitiveness in the digital gaming sector, and providing greater tax supports to our start-up and SME/Agri sectors, this represents a balanced and growth oriented budget. Set against the backdrop of global tax reform and Ireland’s recent decision to move away from it’s long heralded 12.5% corporate income tax rate, I believe this budget was more focused on tackling some of the infrastructural challenges Ireland has faced in recent times, namely around housing and jobs, which are crucial to maintaining Ireland’s competitiveness and ability to attract foreign direct investment.

    “However, one area where the Budget could have achieved more was in the area of the sustainability. Whilst the Minister passionately spoke of the critical urgency to tackle our carbon consumption and de-carbonising our economy, the roll forward measures around increasing carbon tax fell a little short on scale and ingenuity to really make a difference.”

  • Neil Gibson, Chief Economist, EY Ireland

    The economic impact

    “A budget of modest tax cuts and extra spending commitments is not typically what you would expect towards the end of a generational crisis, but that is exactly what Budget 2022 was. Public finances and the labour market are in better shape than the Government, and indeed most forecasters, expected and that allowed additional spending to soften the impact of the increases in the cost of living. The sobering figure of nearly €50,000 per person of debt was not ignored, but the priority remains to grow fast enough to manage the debt rather that anything more urgent. Time will tell if Ireland can avoid the tax increases that many other economies are having to apply to repair their finances.

    “Prices and the increased cost of living were the most notable change from the tone of the Summer Economic Statement. Whilst the themes of housing and climate change have long been known, the emergence of inflationary pressures and the recognition that they might not be purely short term, clearly influenced many of the announcements. With an expansionary budget containing an increased capital programme, there was little to dampen domestic pricing pressures. Cost control and ensuring value for money will be key themes in the year ahead.

    “For the first time, a Budget speech contained no mention of Ireland’s GDP performance. Given it is likely to be atop the global charts yet again in 2021, it showed remarkable restraint to focus on Modified Domestic Demand. It was the right thing to do, the GDP data is an unreliable narrator and it would have set the wrong tone for the rest of the speech. It is important to note that almost all of the macroeconomic indicators, including tax receipts, employment levels and government borrowing, have performed ahead of expectations, which provided a flexibility to plot a course that was not open to Ireland when it last emerged from a global crisis.”

  • Michael Rooney, Partner, Tax and Law, EY Ireland

    Income Tax

    “Income tax receipts were €22.6bn in 2020, which was only €293m less, or 1.3% lower, than 2019. This is despite 664,000 people being on Government supports at one stage during 2020, which is about 25% of the workforce.  The importance and resilience of the income tax system is clear, but our economic rebound and the inflationary pressures that brings, meant that the Minister had to raise the tax and USC bands and increase tax credits, so that all taxpayers could feel like they had a little bit more net income in their pocket. For higher rate taxpayers, the additional net income is nearly €35 per month or €415 per annum.”

    Jobs recovery

    “Minister Donohoe stated that 400,000 more jobs will be added to the employment register by the end of 2022. It will be interesting to see where those employees will materialise from as most companies are already struggling to recruit staff in a market where international remote working is now available to many employees, and hospitality is struggling to reopen on the back of significant staff issues.”

    Supports for entrepreneurs

    “Minister Donohoe spoke about entrepreneurs being the backbone of the domestic economy and introducing measures to support business such as the extension of the Employment Investment Incentive (EIIS) scheme for a further three years. In addition, the funding incentives will be enhanced by the Innovation Equity fund which will provide €90 million of funding for seed stage Irish SMEs. Whilst these measures will help entrepreneurs in the early stage of development, an increase in the entrepreneurial relief threshold from €1 million to €5 million would have been welcome so as to incentivise small business owners to grow their business and reward them for the risks they have taken.”

  • Rachel Dillon, Head of Global Mobility, People Advisory Services, EY Ireland

    Flexible working supports

    “With the great resignation of 2021, the ability to offer flexible working arrangements will be crucial for many employers so that they can attract and retain talent, therefore the Government’s commitment to their policy to facilitate remote working arrangements is very welcome. While the increase in the tax deduction for vouched utility expenses from 10% to 30% sounds significant, in financial terms, if an employee incurred utility expenses of €1,000 per year, this would be worth approximately €120 in cash to a higher rate taxpayer working from home on a full time basis. 

    “While there is certainly an increasing demand from employees for flexible working arrangements, employers need to remember that facilitating international remote working arrangements outside the country of employment can give rise to complexity, including additional employer compliance requirements.”

  • Ian Collins, Partner and Head of Innovation Incentives, EY Ireland

    Digital Gaming Tax Credit

    “It is refreshing to see Ireland aspire to introduce a very competitive Digital Gaming Tax Credit (DGTC) – both in terms of rate (32%) and level of allowable spend per project (€25 million). This compares very favourably to many of our competitor jurisdictions where a DGTC has been in place for many years. It is hoped this will have the intended consequence of boosting Ireland’s creative economy, and act as a further stepping stone to promoting Ireland as a world class hub for the digital gaming sector.”

  • Annette Hughes, Director, Economic Advisory Services, EY Ireland

    Housing supports

    “The strong position of the public finances before the pandemic, with a balanced budget achieved in 2018 and a surplus of €1.1bn as recently as 2019, shows the vulnerability of the economy to external shocks such as COVID-19. Meanwhile, the deficit is now projected at €21.5bn in total this year and next, albeit lower than expected. It will be important now to get back on a trajectory towards a budget surplus again, so that we’re in a position to restore public services and living standards and deal with the inevitable internal challenges and/or any external shocks that emerge over the coming years.

    “The proposed zoned land tax of 3% as a measure to boost housing supply is welcome, provided it is supported by a number of criteria. The tax raised should be ringfenced for the provision of servicing and other infrastructure for residential development in the locality where the tax is collected, rather than returned to the central Exchequer, and should be used during the lifetime of a development plan. Moreover, the revenue raised should also be used to offset (partially or in full) development contributions levied on new homes by local authorities, and the cost of utility connections for new housing. This will ensure the new homes that are delivered are affordable for potential house buyers. Replacing the existing vacant site levy of 7%, which was punitive in some instances for those seeking to develop lands, and unclear in its application, and giving responsibility to the Revenue Commissioners will ensure that the tax actually generates revenues which can support the delivery of affordable housing.   

    “The extension of the Help to Buy scheme at current rates for another 12 months will also support first-time buyers and provide certainty to home buyers and home builders. However, perhaps this was a missed opportunity to extend the scheme for a further two years until the end 2023 to support first-time buyers, including those returning to work post the pandemic or starting to save a deposit for their first home, which is likely to take at least two years.”

    Employment

    “The projection of 425,000 new jobs in 2021 and 2022 is remarkable and corresponds to around 20% of current employment levels. This will be challenging, and while many will be coming off the Pandemic Unemployment Payment (PUP), it does raise issues around the nature of these jobs, which sectors will they arise in and will they be different to the jobs that have traditionally been created in the economy. With many business sectors now focusing on digitalisation and the adoption of technology, it will be important that any new jobs add to the productive potential of the economy. Government can help facilitate this transition by supporting upskilling and investment in research, development and innovation for those sectors which struggle with low productivity.”

  • Stephen Prendiville, Head of Sustainability, EY Ireland

    The climate agenda

    “The budget announced today maintains the Government’s commitment to the climate agenda. Coupled with the revised National Development Plan published last week, and in anticipation of the forthcoming Climate Action Plan and carbon budgets, Budget 2022 continues a consistent theme and commitment to our sustainable future. Strong signals including the 22% increase in the carbon tax to €41, as promised last year, should not be underplayed - this Government is committed to our climate ambition and is following through on its stated plans. The proposed changes to VRT will also continue the pressure to decarbonise transport, as well the removal of the accelerated capital allowances for equipment that runs on fossil fuels. It was also encouraging to see positive steps taken through the promotion of new and exciting opportunities such as green hydrogen.”

  • Shane MacSweeney, Partner and Head of Government & Infrastructure, EY Ireland

    Infrastructure investment

    “Today’s Budget reaffirms the Government’s continued commitment to infrastructure investment in Ireland, as evidenced by the publication last week of the revised National Development Plan (NDP). Next year’s allocation of over €11 billion under the NDP, bringing Ireland’s investment in capital to almost 5 per cent of GNI* is very welcome. Not only will this investment deliver on our infrastructure gap, it will also yield much needed economic and societal dividends to a post-COVID Ireland. But our attention must now focus on turning this ambitious policy into physical delivery which will only happen through collaboration and innovation. The scale of the NDP presents a significant opportunity for collaboration and partnering between the public and private sectors, harnessing the same levels of energy that were shown throughout the pandemic.”

  • Deirdre Hogan, Partner, Tax and Law, EY Ireland

    Indirect tax

    “VAT did not feature significantly in the Budget, save for the reduction in the farmer’s flat rate addition, and confirmation of the application of the reduced 9% VAT rate to certain services in the hospitality industry until 31 August 2022.

    With the upcoming climate action plan and carbon budgets still to be announced, areas that Government could look at in future would be to amend entitlement to VAT recovery on certain cars. Currently, partial recovery is permitted on cars with CO2 emissions of less than 156g/km. The Minister could have restricted VAT recovery on fossil fuel run cars and extended the scope of deduction on electric cars.”

    “An increase in the threshold for the cash receipts basis of accounting for VAT would have been welcomed. It would have been another measure in support of small and entrepreneurial businesses in the State. An increase from €2 million to €2.5 million would have led to a one off cost to the Exchequer of €38.1m but an additional 1,824 businesses would have benefited from this increased threshold.”

    Carbon tax

    “As expected, Budget 2022 sees a carbon tax rate increase of €7.50 from €33.50 to €41 per tonne/CO2 as Ireland continues efforts to lower carbon emissions. Whilst delivering on its commitments to reduce carbon emissions by means of phased, punitive tax measures, effectively the stick to change behaviours, it is not enough. The Minister said that Carbon Tax is the “single most effective climate policy which can be pursued by Government;” but without some tangible and easily accessible incentives to act as the carrot, the rate of change is and will continue to be too slow to achieve overall emissions reduction targets by 2030.”

    Excise tax

    “The granting of up to 50% excise relief to independent small producers of cider and other fermented drinks products is welcome given Ireland’s rate of excise on cider was the third highest in the EU. This reduction puts cider and other fermented drinks products on par with the craft beer sector which has enjoyed and reaped the benefits of a 50% reduced excise rate for the past 15 years. There are estimated to be approx. 75 independent micro-breweries in Ireland and the measures announced today should be very supportive to their future success. The date of implementation does not look likely to be until Finance Bill 2022, however the cost to the exchequer should be minimal.”

    Fuel prices

    “Diesel and petrol prices will increase as of midnight tonight due to an increase in carbon tax from €33.50 to €41 per tonne. With inflation and overall costs of living rising, the increase in transportation costs will be felt by consumers, but is it enough to have them reduce their usage in the absence of better and more sustainable alternatives? Likely no.”

    VRT

    “The VRT relief for Battery Electric Vehicles of €5,000, which was due to expire at the end of 2021, has been extended for two years to the end of 2023. This is welcomed as the uptake in EVs is still not where it needs to be to meet our targets of one million EVs on the road by 2030, and every incentive helps.

    “From 1 January 2022, a revised VRT table is being introduced. The changes will make high emission cars more expensive and should generate approx. €82 million for the exchequer. While this represents another stick to increase the uptake of EVs, in the absence of increased infrastructure to support the use of EVS nationwide, this measure will likely be limited in its success. It is hoped the infrastructure needs will be addressed in the upcoming carbon budget.”

Videos: Budget reactions

    Rates at a glance

    Our budget case studies provide more information based on specific scenarios

    Scenario 1

    +2.36%

    Kate is 28, lives in an apartment in Sligo and earns the minimum wage working 39 hours p/w in a restaurant +2.36% Change to net income, increase of €449

    Scenario 2

    +0.97%

    Victoria (74) and Patrick (70) are a retired couple. Patrick receives the full Contributory State Pension and has an occupational pension of €90,000 p/a +.97% Change to net income, increase of €767

    Scenario 3

    +0.81%

    Marie is 29 and a single mother, living in a house in Cork. She is a marketing consultant earning €70,000 p/a +.81% Change to net income, increase of €415

    Scenario 4

    +0.70%

    Peter and Fiona are married. Peter earns €90,000 p/a as a self-employed person from his own accountancy practice and his wife is a home-maker They have three children aged four, seven and nine +.70% Change to net income, increase of €465

    Scenario 5

    +0.50%

    James and Mary are married. James is a supervisor earning €36,000 p/a and Mary is a part-time hairdresser earning €12,500 p/a. They have two children living at home and attending college +.50% Change to net income, increase of €215

    Scenario 6

    +0.29%

    Sean and Lisa are married. Sean is a hospital consultant and Lisa is a home-maker. Sean earns €180,000 p/a from his employment, has consultancy earnings from his private practice of €130,000 p/a and receives net rental income of €20,000. Sean plans to make a pension contributions of €35,000. They have 1 child under five years of age, who is incapacitated. +.29% Change to net income, increase of €465

    Budget 2022 Tax Alert

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    Podcast: The Budget Briefing - Episode 2 (14 October)

    How will the Government’s plans in Budget 2022 affect businesses and the economy? EY’s Neil Gibson and Kevin McLoughlin join Sorcha Corcoran and economist Jim Power on ‘The Budget Briefing’ to sift through the detail of Budget 2022.

    Inside Business Podcast: What does Budget 2022 mean for you?

    In the latest episode of the Irish Times Inside Business podcast, listen to business editor Ciaran Hancock in conversation with EY’s Head of Tax, Tax and Law, Kevin McLoughlin on the tax changes announced in Budget 2022 and what it means for you.

    Listen to the podcast

    Podcast: The Budget Briefing - Episode 1 (6 October)

    What will this year's Budget bring and how will businesses and taxpayers be affected? EY’s Annette Hughes and Kevin McLoughlin join Sorcha Corcoran and a panel of economists on ‘The Budget Briefing’ to discuss everything you need to know about Budget 2022.

    Inside Business Podcast: Balancing the books after a crisis

    Inside Business Podcast: Cliff Taylor is joined by Kevin McLoughlin, Head of Tax, Tax and Law, EY Ireland, to discuss what’s likely to be included in next month’s budget package and the role tax might play in balancing the books. They also discuss OECD global tax reform and the impact it will have on this country.

    Listen to the podcast

    Summary

    This page will be continually updated throughout the day. Stay informed with real-time insights, analysis and commentary from 1pm onwards.

    About this article

    By Kevin McLoughlin

    EY Ireland Head of Tax

    Tax leader, Cyclist and music fan