Taxation Choices for Budget 2022

Posted on Monday, 16 August 2021
tax base

Budget 2022 offers an opportunity for Government to reform some aspects of the current taxation system in the interests of enhancing fairness and sustainability. Budget 2022 is an opportunity to make some overdue changes which will also provide some additional revenue. Here we outline a series of reforms for Budget 2022.

Carbon Tax and Fairness

Budget 2021 increased the carbon tax to €33.50 per tonne and the Finance Act 2020 included a schedule of annual carbon tax increases so that the 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 2022 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; a policy priority that should be emphasised over just raising revenue. This proposal would generate an additional €159m 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 the 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 an EU average of 21.29%. Budget 2022 should commence a process of increasing employers’ PRSI rates by 1% a year for the next five years (reaching 15.05% by 2027). The initial increase should be delayed to commence from April 2022 and will raise an additional €495m in 2022.

Taxing Empty Houses / Underdeveloped Land

Budget 2022 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 on the edges of urban areas. 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. There remains a large number of empty units across the country. We propose that Budget 2022 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 2022 reducing the central fund allocation to Local Authorities by same.

Limit the ability to carry losses forward

Social Justice Ireland believes that in Budget 2022 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. While there is merit in having some period available to carry losses, to reflect the choices and operating decisions of business and other short-term effects, there is no merit in these continuing indefinitely as is currently the case. We suggest introducing a rolling limit of 5 years on these losses commencing from midnight of the day Budget 2022 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 2022 would also extend and amend the current banking levy (due to expire at the end of 2021), reducing it by 50 per cent, as a means of partially offsetting this effect for banks. Together this proposal would yield an additional €100m in 2022.

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 over recent years. A reform to this refund structure is overdue and it should be removed from the structure of this tax break in Budget 2022. 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 2022.

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 tax to 3% (+€46m);
  • increase from 30% to 32% the minimum effective tax rate for people earning €400,000+ (+€98m);
  • restore the Non Principal Private Residence (NPPR) charge on second homes at €500 a yr (+€125m);
  • increase Capital Gains Tax and Capital Acquisitions Tax from 33% to 35% (+€66m and + €26m);
  • Increase from 7.5% to 8% the stamp duty on non-residential property (+€30m);
  • Increase stamp duty on residential property transfers (amounts in excess of €1m) to 5% (+€30m).
  • Standard rate all pension-related tax reliefs, saving €423m in 2022;
  • Standard rate discretionary (non-pension) tax expenditures cost €5m+, saving €147m in 2022;
  • Implement a system of Refundable Tax Credits (for the two main income tax credits) at a cost of €140m.
  • Compliance: allocate +€45m to Revenue.