Budget 2010

Budget 2010 is 'the last big push' of this economic crisis, according to the Finance Minister adding that 'the worst is over'. This was not a budget of tax increases; instead the focus has been on the reduction of expenditure.

From a business perspective there are no major changes except for the adjustments detailed below.
There were no changes to the following:

• Rates of capital gains tax, capital acquisition tax or stamp duty
• Income tax bands
• Corporation tax rates

Business Taxation

Capital Allowances
There is an extension of the existing capital allowances scheme for energy efficient equipment purchased by companies from seven categories of eligible equipment to ten.

• Corporation Tax
  Extension of the existing scheme providing a three year exemption from tax on the income and gains of new start-up companies to include companies who commence trading in 2010.
• Value Added Tax
  The standard rate of VAT will be reduced from 21.5 to 21 per cent with effect from 1 January 2010. This decrease will apply to all goods and services which are currently subject to VAT at 21.5 per cent.
• Other Measures
  The Minister awaits the report of the Innovation Taskforce and will explore recommendations in the context of the Finance Bill.

The Minister notes that he shall also be bringing forward changes in the Finance Bill which will strengthen Ireland's competitive edge in the international financial services sector with a view to making Ireland a European hub for the international funds industry.

Personal Tax

• Income Tax
  The specified reliefs regime is to be amended to ensure a minimum effective income tax rate of 30% (on top of which they will also pay PRSI and levies) for high earners availing of various tax incentives. The entry point to the restriction will now also occur at adjusted income levels of €125,000 with the full restriction applying at €400,000.
• Mortgage Interest Relief
  Qualifying loans taken out before 1 July 2011 will continue to get relief at current levels for seven years, and transitional arrangements will apply to loans taken out in the subsequent 18 months at a reduced level and duration. Mortgage interest relief is to be abolished by the end of 2017.
• Property
  Work is to begin shortly on the development of a site valuation tax and the development of a register of land ownership and valuation to facilitate same.
• Income Tax
  Irish non-resident nationals and domiciled individuals will pay €200,000 in any year where their worldwide income exceeds €1m and their Irish located capital exceeds €5m. This will apply regardless of where the individual is tax resident. Details to be announced in the Finance Bill.
• Pensions
  The National Pensions Framework will separately consider the tax treatment of lump sums above €200,000. The Minister accepts the Commission on Taxation's recommendation that pension lump sums less than €200,000 should not be taxed.

Indirect Taxation

• Vehicle Registration Tax

The following package of measures will be introduced:

- Car Scrappage Scheme
- Extension of VRT exemption for Electric Vehicles
- Extension of VRT relief scheme for Plus-in Hybrid Electric Vehicles

The Minister has announced a car scrappage scheme which will apply from 1 January 2010 to 31 December 2010. The scheme will provide for up to a €1,500 reduction in Vehicle Registration Tax on a new car bought where a car of 10 years old or more is scrapped.

• Carbon Tax

A carbon tax at a rate of €15 per tonne is being introduced on fossil fuels. The tax will apply to petrol and auto-diesel with effect from midnight, 9 December 2009; and from 1 May 2010 to Kerosene, Marked Gas Oil, Liquid Petroleum Gas (LPG), Fuel Oil and Natural Gas.

Summary of Other Changes:

Homeowners who are now in negative equity whose entitlement to mortgage interest relief would expire in 2010 or after, will now continue to receive relief up to end of 2017.

Unified social contribution scheme to replace PRSI, the Health Levy, and Income Levy to be introduced in 2011.

The NTMA will establish in early 2010 a new investment opportunity in a National Solidarity Bond. The bond will be open for investment by ordinary citizens early in the new year. The bond will be in addition to the current range of "state savings" products.

The Minister has announced the following reductions in excise on alcohol products as follows:

• 12 cent reduction on a pint of beer and cider.
• 14 cent reduction on a half glass of spirits.
• 60 cent reduction on a bottle of wine. These changes are effective from midnight 09 December 2009.

No changes are being made to the rate of excise on tobacco products.

Budget Framework / Other Measures

The Minister has announced the following reductions in Public Sector pay:

• The salary of the Taoiseach will be reduced by 20%.
• Ministers and secretaries general of government departments will have a pay-cut of 15%.
• Public Servants earning €200,000 or more will have a 15% pay reduction.
• Public Servants earning from €165,000 to €200,000 will have a 12% pay reduction.
• Public Servants earning from €125,000 - €165,000 will have an 8% pay reduction.
• Other Public Servants' pay reductions which will effect from 1 January 2010 include:
• A 5% reduction on the first €30,000 of income.
• A 7.5% reduction on the next €40,000 of income
• A 10% reduction on the next €55,000 of income.

This produces overall reductions in salaries ranging from 5% to just under 8% in the case of salaries up to €125,000.

Children
Child Benefit rates will be reduced by €16 per month from January 2010 bringing the lower rate to €150 per month and the higher rate to €187 per month.

The increase for a Qualified Child will be improved by €3.80 per week from 1 January 2010.

All Family Income Supplement (FIS) earnings thresholds will be increased by €6 per week per child.

Increase in DPS Threshold of €20
The monthly threshold for the Drugs Payment Scheme is being increased from €100 to €120.

Prescription charge of 50c per item

The number of prescriptions under the GMS has increased in recent years from 12.79m in 2004 to 15.65 m in 2008. The number of items dispensed in the GMS has increased from 35m to 48.21m in the same period. To address the associated rising costs a 50 cent charge per item subject to a monthly ceiling of €10 per family is being introduced for the GMS and LTI scheme.

For further information please contact Niall Dempsey, OSK Tax.