BUDGET 2020: A BUDGET FOR UNPRECEDENTED TIMES

“The economy is poised at a point between the twin risks of overheating and Brexit.” Anyone wanting to understand the thrust of Paschal Donohoe’s Budget needs only to re-read the words, “overheating and Brexit”. 

Take overheating. Ireland has plenty of experience in dealing with the consequences of an over-heated economy. The Minister’s reluctance to announce tax give-aways therefore should come as no surprise. The increase of €15,000 in the main Inheritance and Gift Tax threshold was a case in point. It doesn’t keep pace with the rate of inflation in house prices, doesn’t qualify as a give-away but simply highlights the need for more to be done.

In contrast the increase in the rate of stamp duty on commercial property transactions to 7.5% was unwelcome, reminiscent of panic-induced Budgets that attempted to keep the lid on prices before the Financial Crash by introducing a 9% rate. This time however, the target is not home-owners carried away by the boom but an office market, racing to cater for the demand from foreign-direct investment

As for Brexit, there is a clear intention to avoid the uncertainty shock that torments our nearest neighbour. So, on the one hand, €1.2 bn is earmarked to support the sectors that will bear the brunt of a Hard Brexit while on the other, tax measures are introduced to stimulate enterprise.

It’s in this context that the improvements to the Employment and Investment Incentive Scheme (EIIS) are to be judged. Bringing forward full income tax relief to the year of investment corrects a glaring disincentive whereas the increase in the annual investment limit from €150,000 to €250,000 is a positive move.

This should make it easier for companies to raise significant amounts of capital. And anything that helps EIIS companies move away from being cottage industries and brings them closer to the public markets is a step in the right direction.

The increase in the R&D credit from 25% to 30% for micro and small companies will help incentivise a sector that is in sore need of an injection of R&D.

Of course, the fact that there wasn’t enough headroom in the public finances to provide for an increase in gains qualifying for 10% Entrepreneurial Relief was a disappointment.

Minister O’Donohoe mentioned that his Budget was written in the shadows of Brexit. Clearly those shadows are getting longer by the day.

Click on the link to download the McAvoy & Associates 2020 Budget Briefing

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