Edward Murphy, Partner and Head of Tax Services, gives his analysis of Budget 2021.
When Minister Donohue delivered his Budget 12 months ago, he told us that we had to be safe and cautious due the possibility of a no-deal Brexit. One year on, Brexit uncertainty is ever more present, but we now also have the monumental pressure of a pandemic. Budget 2021 is a €17.75bn package, the largest in the history of the State. Minister Donohue has attempted to strike a balance between the country’s longer-term financial position and supporting those out of work and those businesses who are struggling to stay alive.
We will dip into our emergency rainy day fund this year for €1.5bn as the Government expects to have to borrow almost €20bn in 2021 to deal with the shortfall in tax receipts and the required significant spending on various Covid-19/Brexit supports and on our health system and infrastructure costs. EU financial supports expected in 2021 on both the Covid-19 and Brexit fronts will be welcomed.
The Minister took the opportunity to again re-affirm Ireland’s commitment to its 12.5% Corporate Tax rate and to acknowledge Corporate Ireland’s significant contribution to the Country’s national tax purse.
The large spending amounts announced on housing, infrastructure, defence, health and education would in any other Budget be seen as stand-out, but in Budget 2021 they are in the shadow of the even larger Covid-19 crisis supports that the government is committing to support businesses. Targeted sector supports to tourism, hospitality, arts/entertainment and other businesses affected by Covid-19 are aimed at preserving existing jobs or keeping some of the businesses in these sectors on life-support. Employment is the key to survival and recovery. Indeed the ‘green’ initiatives of increasing Carbon Tax to help to fund making homes more energy efficient, appear incidental.
The sheer scale of the challenges facing Ireland may have in one sense helped the Government Partners to agree to Budget 2021’s size and approach. However, this ‘’borrow now, pay later’’ Budget has moved the relatively recent promise of tax decreases to more now the question of who will pay for this in the longer term?
To see how the budget affects you, you can read our Budget 2021 Highlights.
For more information, please contact Eddie Murphy, Partner and Head of Tax Services.