Mercer update Ireland Budget 2022

The Government has delivered its Budget 2022 statement this afternoon. While last year’s package of over €17 billion was the largest ever, delivering a range of measures to address the impacts of the Covid-19 pandemic and Brexit at a time of extreme economic uncertainty, this year’s Budget package of €4.7 billion is relatively modest by comparison.

The Government is focusing primarily on managing the higher levels of debt created by its pandemic response, but also capitalising on a much-improved economic forecast for 2022 which predicts a strong recovery after the pandemic. The economy is expected to grow by 6.5% in 2022, with employment figures reverting back to pre-pandemic levels. There is also a focus on delivering measures to assist with alleviating inflationary pressures faced by businesses and individuals due to cost of living increases.

The Budget statement also confirmed that for the first time in nearly 20 years, Ireland’s effective corporation tax rate of 12.5% will be increasing from 2023. However, the effect of this decision on wider business is unlikely to be significant – the new 15% rate will apply only where revenue exceeds €750 million a year which means only the largest employers in Ireland are likely to be affected. 

Pensions

On pensions issues, there is a sense of déjà vu as for the third year in a row the Budget excludes any measures relating to private pension provision.

In particular, there was no mention of any allocation of expenditure for investment in the implementation of the automatic enrolment retirement savings system, a policy which was specifically included in the 2020 Programme for Government. The status and future of this initiative remains extremely uncertain.

It was also notable that there was no mention of the recently-published Pensions Commission report, which has advocated recommendations to reform the State pension system. The Government has previously committed to take action within 6 months having regard to the Commission’s recommendations.

The lack of attention that pension saving has received in recent years is disappointing given the serious questions that need to be addressed regarding the long-term overall cost and sustainability of the State pension and the need to incentivise supplementary pensions coverage.

As had been widely flagged, the full rate of contributory State pension will be increasing for the first time since 2019 by €5 a week to €253.30 per week (€13,171.60 per year). This will affect all ‘integrated’ defined benefit schemes which continue to calculate benefits and/or contributions by reference to the prevailing rate of contributory State pension. It is unclear when the increase will take effect; in recent years, increases have applied from March, which has created additional calculation complications for integrated schemes. 

Employers

The Budget is light on measures relevant to employers. Of note:

• The Employment Wage Subsidy Scheme will remain in place for the next few months in a graduated form until 30 April 2022.
• The National Minimum Wage will increase by 30 cents to €10.50. The ceiling of the second Universal Social Charge rate band will also be increased from €20,687 to €21,295 to ensure that workers on the minimum wage remain outside the scope of the top rate of the USC.
• The weekly income threshold for the higher rate of employer’s PRSI will increase from €398 to €410, following a recommendation from the Low Pay Commission to ensure that the increase in the minimum wage doesn’t lead to disincentives for workers.
• For workers who work remotely, an income tax deduction will be available amounting to 30% of the cost of vouched expenses for heat, electricity and broadband used while working from home.
• The Employment Investment Incentive programme, which provides tax relief for individuals providing equity-based finance to trading companies, is being extended until the end of 2024.

Tax

In general, tax changes are limited. In particular:

• The standard rate band for income tax purposes will increase by €1,500, from €35,300 to €36,800 for single individuals (and from €44,300 to €45,800 for married couples/civil partners with one earner). There will be a €50 increase in the Personal Tax Credit, Employee Tax Credit, and Earned Income Credit from €1,650 to €1,700.
• There will be a €608 increase in the 2% rate band ceiling, with this moving to €21,295. The reduced rate of USC for medical card holders will be extended for a further year.
• Carbon taxes will continue to rise until 2030 in line with the measures announced in the Finance Act 2020. This year’s increase of €7.50 per tonne of CO2 emitted applies immediately for auto fuels, and from 1 May 2022 for all other fuels. Vehicle Registration Tax will also be increased again.
• The temporary VAT rate of 9% applicable to tourism and hospitality goods and services will remain in place at least until the end of August 2022.