Budget 2023 has been flagged by the Taoiseach as a ’cost of living budget’ and Social Justice Ireland believes that it is important that the Budget should strategically approach taxation issues with the objectives of prudently using the available resources, continuing to build a fairer and more sustainable taxation system, and acknowledging that post-pandemic Ireland will need to raise more recurring tax revenue. On this page we outline a series of reforms for Budget 2023 while on the next page we present a more extensive agenda for reforming the taxation system; this reflects our submission and engagement with the Commission on Welfare and Taxation which is due to report before Budget day.
Taxation, Cost of Living and Fairness
Budget 2023 should avoid using taxation measures as a means of providing short term solutions to the cost of living challenges all of society now faces. Reductions in income taxes, indirect taxes, excise duties and levies represent poorly targeted measures and should be avoided. As we outline elsewhere, the most prudent use of available resources is to target increases in core welfare rates alongside targeted welfare supports for certain groups.
Carbon Tax and Fairness
The 2020 Finance Act included a schedule of annual carbon tax increases so that this rate reaches €100 per tonne in 2030 (€7.50 per tonne per annum for 9 years and €6.50 in the final year). These commitments reflect commitments in the Programme for Government and the recommendations of the 2019 all-party report on climate change. We believe that Budget 2023 should abide by these commitments and increase the carbon tax, as planned, by €7.50 per tonne. It should also include a commitment to use the revenue raised to fund a series of targeted accompanying measures to protect those most affected by it, in particular low-income households and rural dwellers. Given the significant climate challenges we now face, a carbon tax is an important tool in encouraging behavioural change. This proposal would generate an additional €160m in a full-year to re-invest in accompanying measures.
Post Pandemic Increase to Employers PRSI
The actions of Government during the pandemic has highlighted the importance to individuals and business of the social safety net provided by state. A core aspect of this is the social insurance system. In European terms Ireland collects very low levels of employers PRSI. For most jobs the rate in Ireland is 11.05% compared to a EU average of 21.29%. Budget 2023 should commence a process of increasing employers PRSI rates by 1% a year for the next five years (reaching 15.05% by 2028). The initial increase should be delayed to commence from April 2023 and will raise an additional €500m in 2023.
Taxing Empty Houses / Underdeveloped Land
Budget 2023 should empower local authorities to collect a new site value tax on underdeveloped land - such as abandoned urban centre sites and land-banks of zoned land. This tax should be levied at a rate of €2,000 per hectare (or part thereof) per annum and replace the current vacant sites levy. In the context of an ongoing shortage of housing stock, building new units is not the entire solution as there remains a large number of empty units. We propose that Budget 2023 introduce a levy on empty houses of €200 per month with the revenue from this charge collected and kept by local authorities. Income from both these measures would yield €75m for local authorities in 2023 reducing their central fund allocation by the same.
Limit the ability to carry losses forward
Social Justice Ireland believes that in Budget 2023 Government should reform the tax laws so that limits are placed on the ability of individuals and corporations to carry past losses forward and offset these against current profits/income. We suggest introducing a rolling limit of 5 years on these losses commencing from midnight of the day Budget 2023 is announced. Losses prior to this period would no longer be available to offset against profits or capital gains. While this initiative would bring greater fairness to the overall taxation system, we note it would have a disproportionate effect on banking institutions who carry significant, self-inflicted, losses from the economic crisis a decade ago. Consequently, we suggest that Budget 2023 would also extend and amend the current banking levy. Together this proposal would yield an additional €100m in 2023.
Reform the R&D tax credit
A tax break for companies engaged in research and development was introduced in 1997 and has been revised and reformed on a number of occasions since. A curious component of the current structure is that firms may claim a tax refund on unused R&D credits - i.e. where they have not paid sufficient tax to cover the refund amount. The use of this scheme has allowed a number of profitable firms to record zero or negative (or ‘refunded’) tax-paid amounts. This measure should be removed from the structure of this tax break in Budget 2023. It would yield €150m in a full-year.
Abolish the Special Assignee Relief Programme
The SARP was introduced in 2014 to provide a tax reduction to high earning individuals who locate to Ireland for work purposes (generally in MNCs in IT and the financial sector). Recipients must earn between €75,000 and €1m. Qualifying employees with income above €75,000 receive a reduction in their income tax liability. This subsidy was intended to boost the attractiveness of Ireland for foreign investment; however there is no evidence to suggest the scheme has achieved this or that it has induced any recent investment and relocations that would not have otherwise occurred. The SARP should be abolished in order to make the tax system fairer. This would generate €45m in 2023.
Other Tax Reform Measures
Below are some other taxation measures aimed at broadening the tax-base, increasing revenue, and creating a fairer system:
- increase in-shop/online betting duty to 3% (+€50m);
- increase from 30% to 32% the minimum effective tax rate for people earning €400,000+ (+€100m);
- restore the Non Principal Private Residence (NPPR) charge on second homes at €500 a year (+€115m);
- increase Capital Gains Tax and Capital Acquisitions Tax from 33% to 35% (+€84m and + €34m);
- Increase from 7.5% to 8% the stamp duty on non-residential property (+€38m); Increase stamp duty on residential property transfers (amounts in excess of €1m) to 5% (+€50m).
- Standard rate all pension-related tax reliefs (+€473m); Standard rate discretionary (non-pension) tax expenditures costing €5m+ (+€152m in 2023);
- Introduce Refundable Tax Credits (for the two main income tax credits) at a cost of €140m.
- Compliance: allocate +€45m to Revenue.
Budget Choices 2023 is available to download now.