My Department facilitated the costings of certain proposals during the discussions with independent TDs and groups on the formation of Government. These costings, in the following table, were provided to the Department of an Taoiseach, which had overall responsibility for coordinating this exercise.
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INCOME TAX
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Full-Year cost
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Comments – Revenue & DoF
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A new provision whereby any landlord accepting rent supplement from tenants are given a USC exemption on the rental income.
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Aggregate costing requires further information.
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The benefit to a landlord from the proposal would equate to 3%, 5.5%, 8% or 11% of the rent supplement income, or a blend of these rates, where income crosses the relevant thresholds. To estimate of an overall likely cost, plausible projections would need to be generated for the potential uptake. In addition, to operate the proposal, Revenue would need landlords to provide a breakdown between rent received from residential and other types of property and between rent income arising from rent supplement and other sources of rental income. Such a level of detail is not currently required in tax returns to Revenue. It should also be noted that Finance Act 2015 increased mortgage interest relief to 100% for this cohort of landlord.
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Abolishing USC on all new construction workers earning under €40,000 per annum.
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Department of Finance estimates that this would cost €7.5m for every 5,000 workers earning €40,000. Actual cost would depend on uptake and salary levels.
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As an illustrative example for an individual at certain incomes, the average cost in terms of USC foregone under this proposal is as follows:
Gross Income €20,000 (USC loss €393) - €2.0m per 5,000 workers
Gross Income €30,000 (USC loss €943) - €4.7m per 5,000 workers
Gross Income €40,000 (USC loss €1,493) - €7.5m per 5,000 workers
It is important to note that the proposal would also impose a step effect of €1,493 where income exceeds €40,000.This would be a State aid that requires the approval of the European Commission. It should also be noted that a system treating groups of similar taxpayers differently for tax purposes would present administrative challenges for Revenue to police and may lead to distorted incentives. It is not possible to accurately cost this proposal as the potential number of new construction workers is not available.
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Introducing an income tax exemption on income received from the alternative use of farmland for renewable projects, where such income is used for the purposes of re-investment in farm businesses
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Aggregate costing requires further information
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Additional information on the expected level of uptake and the total amount of income that would be exempted under this proposal would be required before Revenue could attempt to cost it. It is not clear why re-investment would not qualify as a business cost.
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Exempting Income tax on income received from the alternative use of farmland for renewable projects, where such income is used for the purposes of re-investment in farm businesses.
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As per immediately above
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Please see immediately above
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Introducing a tax credit of €12,000 p.a. if rented to a family on the housing list whereby the family going into occupation would be paying no rent but the Local Authority would pay €1,000 p.a. towards maintenance.
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DoF estimates that the cost would be €13m per 1,000 units. Actual cost would depend on uptake.
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A standard rated tax credit of €12,000 would shield €60,000 of income. Given the large numbers on housing lists, this could be of significant cost. However, the nature of the proposal is not fully clear. Further information concerning the number of landlords who might avail of such a scheme, the level of uptake by families and the types of income against which the credit could be used, would be required before Revenue could attempt to cost the proposal. The cost of the Local Authority payment of €1,000 per annum towards maintenance also depends on the uptake.
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Introducing a Disability tax credit, similar to the Blind Persons tax credit.
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€172m (illustrative Rev. Comm. estimate)
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The latest data held by the Central Statistics Office (CSO) regarding statistics on disability are based on the Census 2011 indicates that 112,502 persons with disability were working. This figure includes 8,312 persons who are blind or have vision impairment. Consequently 104,190 persons could be eligible for the new credit (assuming that those eligible for Blind Persons Credit could not additionally avail of the proposed disability credit). If all were to fully avail of a credit of €1,650, the cost would be €172m. However, it should be noted, while the Census 2011 shows 8,312 persons who are blind or have vision impairment, only 18.5% or 1,540 availed of the Blind Persons Credit in 2013 and this may indicate that not all cases may avail of a similar disability credit.
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Introducing a new housing scheme for people at risk of homelessness whereby landlords with unoccupied properties would be exempted from property tax , exempted from any income tax liable from the tenancy up to €10,000 and given 100% mortgage interest relief
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DoF illustrative estimate of €45m for LPT element only, if it concerned 10% of LPT liable properties.
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Further information on the likely uptake would be required to provide a potential cost. However, for illustrative purposes regarding the LPT element only, if an assumption is made that 10% of LPT liable properties are vacant, with an average LPT payment of €241 applies, then the Department of Finance estimates that cost would be c.€45m per annum based on analysis of CSO vacancy rates. This also assumes that all vacant properties would be rented rather than owner-occupied. It should also be noted that the 100% mortgage interest deduction introduced in Finance Act 2015 could benefit such landlords.
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Reducing employer levies for rural town centre employers.
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A 50% reduction in Employers PRSI (excluding NTF levy) would save relevant employers just over 5% on salary costs. Aggregate costing requires further information.
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The Department of Finance has made an assumption that this proposal refers to Employers PRSI, which is the responsibility of the Department of Social Protection. In order to fully cost the proposals it would be necessary to identify the numbers of 'Rural town centre employers' and their associated employees along with individual salary levels and the level of reduction envisaged.
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Expanding the Employment and Investment Incentive Scheme to that investment in farm-scale renewable energy initiatives qualify.
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Potentially already qualify/ Costing of changes would require further information.
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At present, the Department of Finance notes that renewable energy production by farmers who meet the qualifying conditions of EII are eligible under the scheme. It should be noted that the relevant trade must be undertaken by a company that meets the qualifying conditions regarding age and connection to the grid. Should the proposal involve changing those conditions, additional information concerning the level of investments would be required before Revenue could attempt to cost the proposal.
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Introducing a similar scheme to the ‘Living City Initiative’ to regenerate town centres throughout Ireland.
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DoF estimates that, if all towns qualify, the potential cost could be greater than €100 m. Aggregate Costing Requires further information.
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The Living City Initiative was estimated to cost €20m in respect of 6 cities. Its expansion to towns throughout Ireland would be likely to cost significantly more. Additional information in relation to the potential investments in the regeneration of qualifying towns would be required before Revenue could attempt to cost the proposal.
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Extending the SEAI accelerated capital allowances for investment in energy efficient equipment to sole traders.
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DoF: Cost of circa. €1m.
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The current scheme costs in the region of €350,000 per annum. Assuming that an equivalent number of sole traders were to avail of it, the additional cost could be approximately €1 million per annum. This would be a cashflow cost. Additional information on the level of investments made by sole traders in the relevant energy efficient equipment would be required before Revenue could attempt to cost the proposal.
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Extending the Rent a room relief to cover lodger agreements where the licensees are providing a room in their primary private residence for a tenant who is homeless, (as defined by the Housing Act 1988 Section 2) or a refugee. The licensees would be exempted from any income tax arising from the solidarity lodging scheme up to €14,000 per annum.
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DoF Assumption: - less than €0.4 million
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At present, there is no restriction barring the taking in of tenants who are homeless or refugees. It is assumed that this proposal would provide for a different cap on the rent-a-room relief for certain tenants. Increasing the cap on the rent-a-room relief from €10,000 to €12,000 for all applicants in Budget 2015 was estimated to cost €0.4m in a full year, so it could be expected that the cost would be less than that, if uptake were unchanged. Additional information concerning the potential number of landlords who might avail of such a scheme or what amount of income tax would become exempt under the proposal, along with an estimate of the potential uptake of this scheme by those defined under the Housing Act 1988 Section 2, would be required before Revenue could attempt to cost the proposal.
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Develop a voluntary PRSI Scheme for the self-employed
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There are differences in the PRSI treatment of the self-employed as compared to employees.
The self-employed pay Class S PRSI which generates the same entitlement to the State Pension as an employee’s Class A contributions, but does not provide access to certain other benefits such as Jobseekers Benefit or Illness Benefit.
Both cohorts pay 4% PRSI in their own right, but in the case of employees a further employer’s PRSI charge of 8.5% or 10.75% is also payable, resulting in a significantly higher contribution to the Social Insurance Fund in respect of an employee’s earnings.
Ways to further extend the PRSI system on a voluntary basis can be examined (but care will be needed to ensure that costs are manageable).
Costing of options for such a scheme would need to be completed by the Department of Social Protection.
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Equalise the tax treatment of the self-employed.
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To increase the earned income credit from €550 to €1,650 to match the PAYE credit would cost €123 million.
To abolish the 3% surcharge on self-assessed income in excess of €100,000 for the self-employed would cost €144 million.
Or
To extend the 3% surcharge to PAYE income in excess of €100,000 would yield €108 million.
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Full equalisation of the tax treatment of the self-assessed and the employed would require a review of the expenses regime, as that available to the self-employed is more beneficial than that available to employees. In addition, the self-employed can also have significant timing advantages with regard to the payment of income tax liabilities, depending on the accounting year chosen.
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A tax credit worth €2,000 for average income households to help them deal with childcare costs. Low income households to benefit up to €5,000.
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Tentative costings, depending on take-up and eligibility considerations, indicate that such a tax credit could cost in the range of €290m. to €590m. per annum. The specific proposal, as outlined, would be likely to cost at the upper end of the range above.
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The report of the Inter-Departmental Working Group on Future Investment in Childcare in Ireland was recently published, which considered future policy options for increasing the quality, accessibility and affordability of early years and school age (out of school) care and education services. The group did not recommend the introduction of a childcare tax credit.
The benefit of such a credit would be unlikely to accrue to parents and would be more likely to be absorbed by childcare providers in the form of higher prices.
Tentative costings, depending on take-up and eligibility considerations, indicate that such a tax credit could cost in the range of €290 million to €590 million per annum.
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Approximate costing for a tax credit for people at work equivalent to the blind tax credit.
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If intended to be a disability tax credit, then the potential cots estimated by the Revenue Commissioners is €172m. This estimate is based on census figures of those who declared themselves to be disabled and working
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There could be difficulties in specifying and verifying the level of disability required to be eligible for such a tax credit.
The credit, depending on how it was designed, could be available to high income earners, who may not necessarily need additional net income after taxation.
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CAPITAL TAXES
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Reducing the tax on the sale of land with residential planning (shovel ready) from 33% to 20%.
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€12m (Rev. Comm. estimate)
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It is tentatively estimated that the cost of reducing the capital gains tax rate from 33% to 20% on all development land could be in the region of €12m. This is based on information in respect of disposal consideration associated with development land from 2013 tax returns. It is not possible to separately identify the element of the cost associated with “shovel ready” residential land.
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Amending Capital Acquisitions Tax for farmers so that the 90% reduction currently applying to full time farmers applies to part time farmers who lease their land to whole time farmers for five years.
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As agricultural relief is currently available to farmers who spend less than half their working time farming but who lease their inherited or gifted land to qualifying farmers (including those who qualify on the basis of spending at least half their working time farming), and in a range of other circumstances, further clarity is required on the problem the proposal is seeking to address. This could help in determining what effect the measure might have and whether it would be possible to estimate its cost. In this context, some indication of the numbers affected would be useful.
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Raising Inheritance tax threshold to €400,000 for farm holdings, where the person inheriting the property does not have a green cert or equivalent qualification.
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Inheritors of farmland can qualify for CAT agricultural relief, which reduces the value of farm assets by 90% for CAT purposes, in a number of ways. They are not necessarily required to hold an agricultural qualification to obtain the relief. This relief is considerably more generous than a simple €400,000 tax-free threshold. Further clarity is required on the problem the proposal is seeking to address. This could help in determining what effect the measure might have and whether it would be possible to estimate its cost. In this context, some indication of the numbers affected would be useful.
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Establishing a new Tax Incentivised Savings Scheme for purchasers of new first homes whereby the State contribute 25% of every euro in a special savings account for first time buyers
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DoF: Minimum estimate of €75m per annum.
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Large band of uncertainty around this estimate. Currently not possible to establish the potential pool of First Time Buyers that are saving. Question arises as to whether the portion of FTBs who are cash buyers should be included in the scheme. Estimated cost based on average deposit and current sales levels.
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Replacing the current development levy contributions, payable under S48 of the Planning and Development Act 2000 as amended, with property tax.
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DoF Estimate: Additional €5 in LPT per household to replace each €10m of development levies, e.g. €50m additional LPT equals €25 per household on average.
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Development levies are payable in respect of residential development under both S.48 and S.49 of the 2000 Act. Approximately €78m was collected in 2012 under s.48 and S.49 (no split is immediately available between S.48 and S.49). However, the comparable figures for 2006 and 2007 are €670m and €630m. The Department of Finance estimates that each €10m of additional LPT will increase the cost per household by €5 on average. So, for example, €50m in foregone development levies would increase LPT by €25 per household and €200m would increase LPT by €100 per household. Detailed costings would require plausible projections on the likely level of development in the coming years.
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Replacing Part V with a 1% levy on sales of all residential units, both new and second hand.
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€130m (Rev. Comm. Estimate)
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The introduction of a 1% levy on the sale of all residential units, both new and second hand, is estimated to yield approximately €130 million. This estimate does not take account of the revenue that would be foregone by removing the current levy in Part V of the Planning and Development Act 2000 (as amended).
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BUSINESS TAX
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Doubling tax relief on rental expenditure for new business start-ups to encourage businesses to locate in villages and town centres
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Revenue is unable to provide a cost for this proposal as there is no basis on which to estimate the extent to which new businesses might start up in these locations and the amount of associated rental costs. This looks like an operating aid, which is illegal under State aid rules.
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INDIRECT TAXES
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Reducing the V.A.T. Rate on new builds to 0% for 3 years and then increasing it gradually.
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VAT is governed by the EU VAT Directive, with which Irish VAT law must comply. As new builds were not subject to 0% VAT on 1 January 1991, the derogation available to goods and services at the 0% rate does not apply and Ireland cannot make new builds subject to a 0% VAT rate now.
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Implementing a temporary targeted reduction of the rate of VAT from 13.5% to 9% on new, affordable houses and apartments timed to generate the maximum impact on supply.
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€205m (Rev. Comm. Estimate)
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It is possible to apply the 9% VAT rate to the construction of new residential properties, but this would involve having separate VAT rates appyling to construction services. It would be difficult to administer and could lead to underpayment of VAT. The cost to the Exchequer of the reduced rate of 9% VAT for new build residential construction is estimated by Revenue to be in the region of €205m in 2016. New residential completions are forecast to gradually increase to match the medium-term demand of 25,000 units by 2020. Therefore, the cost of providing a reduced rate of VAT for residential construction could be more than €400m by 2020. Furthermore, under EU VAT law, it is not possible to differentiate between "affordable new builds" and "new builds".
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Introducing a new Scrappage Scheme for Heavy Goods Vehicles, along the lines of previous schemes.
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Previous scrappage schemes were based on relief from VRT. As VRT on heavy goods vehicles is only charged at a flat rate of €200, this would not appear to a major incentive. Please note that the VAT on HGVs is already deductible by businesses.
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Introducing a tax on sugary sweetened drinks as a measure to address childhood obesity and use income to introduce measures to subsidise healthy food and school meals programme.
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DoF estimate is a range of yields from €12m to €240m
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The Department of Finance estimates the yield from a levy of between 1 cent and 20 cent in a price increase of a 330ml soda ranges from €12m to €243m. Refining this estimate would demand a range of policy decisions on the exact application of such a levy.
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Retain mortgage interest relief beyond the current end date of December 2017.
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Tentative estimates for costs are €166 million in 2018 and €148 million in 2019
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Existing mortgage interest recipients are those who borrowed to purchase or renovate their home in the years 2004 to 2012.
This includes those who bought at the peak of the market and those who bought at the bottom (circa early 2013).
It is difficult to be definitive about a cost for extending mortgage interest relief for existing recipients as it will depend on the extent of mortgage redemptions, interest arrears and interest rates among other factors.
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Abolish Irish Water and abolish water charges.
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Based on initial cost and revenue estimates provided by the Department of the Environment, Community and Local Government (DECLG), and on the IW business plan, it is projected that the abolition of Irish Water could add about 0.1 to 0.2 percentage points of GDP to the headline General Government deficit each year over the 2016 – 2021 period. The abolition of water charges, one-off wind up costs, loss of potential efficiency gains and possible provision of group water subsidies would be partially offset through an assumed policy decision to cease the water conservation grant and metering programme. See detailed note of 7 April 2016 prepared by DECLG.
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OTHER
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Reform the role of SBCI by fully licencing it as a state enterprise bank similar to the former ICC.
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Estimated costs of establishment €130m, annual operating cost €80m and capital requirement of €550m based on €5bn loan book.
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The SBCI serves as an on lending financial institution, providing low cost wholesale finance to both bank and non-bank on-lending partners in the SME market. Central to the business model is the ability to make credit providers’ products more competitive, by lowering their funding cost.
Turning the SBCI into a direct lender would necessitate a completely different business model with the need to build a distribution, credit assessment and back office capability and as a State guaranteed direct lender in competition with the banks would require clearance under EU State aid rules.
In this manner rather than being a competitor to the existing institutions, the role of the SBCI can be more impactful by being an enabler of competition allowing it to concentrate funding as needed on a general, a product or sector specific basis.
The release of long-term funds by promotional (or state-backed) financial institutions, through frontline (or traditional) finance providers, is a successful and effective model for funding SMEs throughout Europe.
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