Budget 2014 - The KPMG View

A common budgetary timeline is being introduced for all Euro-area member states, and so this year, the Budget is in mid-October. Despite Ireland being scheduled to exit the bailout by December, the government's room for manoeuvre remains limited. Across Europe, the political and economic challenges of getting expenditure under control whilst ensuring competitive tax rates, confronts almost every government, and Ireland is no exception. Last year saw the introduction of a property tax, a rise in PRSI for many taxpayers, and an increase in some excise duties. This year, the headline features of the Budget include: the retention of the 9% VAT rate for the tourism sector; extension of the 7-year capital gains tax exemption to properties purchased during 2014 and the expansion of the REIT and Living City initiatives; a home renovation initiative providing a tax credit to homeowners for specific works; relief from capital gains tax for entrepreneurs in certain cases; restrictions being removed under the employment and investment incentive, which will increase the possibility of SMEs raising investment from equity investors; and for smaller SMEs, the cash receipts threshold for VAT is increasing from 1.25 million to 2 million, with effect from 1 May 2014. Businesses with turnover of less than 2 million, therefore, pay VAT only as the cash comes in. Refelcting the wider global context in which Ireland operates, this year's Budget was framed against a number of international developments. So, what are the implications of Budget 2014 for Irish-based business? We asked Conor O'Brien, Head of Tax & Legal Services at KPMG, for his thoughts: Conor O'Brien: Broadly I think business will welcome this Budget, I think there were 3 things that business ought to welcome from the Budget. Firstly, from a macro-economic perspective, the government has maintained control over the budget deficit, the budget deficit is now getting under control. Secondly, they've published today an international tax charter, and that does two things, firstly it reaffirms Ireland's 100% commitment, which was the phrase the Minister used, 100% commitment to 12.5% rate of corporation tax, and secondly, it reaffirmed that Ireland acts with integrity in its international tax affairs. As the Minister neatly put it, Ireland plays fair, but also plays to win in international taxation matters. And finally, the Budget contained a number of specific and detailed pro-growth, pro-jobs measures, and I think given the constraints that the Minister was operating under, particularly the fiscal constraints, it's to be welcomed, and he managed to find enough space for quite a number of significant and important pro-growth, pro-jobs measures. Wolfgang Munchau: In the short term, the outlook is relatively stable, the eurozone is coming out of a recession, and we will expect a pick-up of GDP growth at the end of this year, the recession will have officially ended, whether one would actually want to characterise it is another question, because unemployment will remain high, the growth will be weak that we'll get next year, we're looking at growth rates between 0% and 1% for the eurozone as a whole, and most of its member states, it will be a weak recovery, and there's no way that the eurozone will even come close to the GDP trajectory that it had before the crisis, so this is a drop in the level of output and a drop in the growth of output. But, yes, the recession will end. There's stability, the ECB brought in stability through the programme of bond purchases that was announced by Mario Draghi last year, that has significantly calmed the markets, bond yields have recovered, so there is a sense of stability in the short term. For the specific tax details of Budget 2014, and how it will affect you and your business, get the KPMG app and download your own copy of Taxing Times at KPMG.ie.