EY reacts to Budget 2023: Sustainability, Economic Impact, Housing, R&D, VAT and Small Benefits Exemption

Stephen Prendiville, Head of Sustainability, EY Ireland:

“Between addressing the immediate and critical needs generated by the trilemma facing Irish business and individuals (energy, inflation, supply chains), and also maintaining a focus and momentum for positive climate action and sustainability – Budget 2023, more than most in the past, had to get the balance right between short term needs and long term obligations. Incentives and grants for retrofitting and energy efficiency upgrades, as well as funding for public transport, EV charging and agriculture initiatives are all welcomed and positive.

The science however, says we need to accelerate our climate action, and in light of this, there is more work to do to help increase the pace of our climate or sustainability ambitions. Our climate ambition and sustainability goals require that we adapt and think differently about how we function as an economy.”

Concrete Levy

“While it wasn’t intended as such, I suspect that the 10% levy on concrete products will prove a positive incentive for decarbonisation in the building and construction sector. Many of our large indigenous businesses involved in this industry have very positive sustainability plans aimed at decarbonising their product portfolios. I would hope that “green” concrete type products might be given exemption from the levy as a further incentive for transformation.”

David McNamara, Director, Economic Advisory Services, EY Ireland

“Budget 2023 is one of the most substantial interventions announced by the Government outside of the Covid-19 period. An €11bn package – equivalent to c.4.3% of the domestic economy (GNI*) was outlined by the Ministers, including €4.1bn in once-off cost of living supports. The number and breadth of measures announced are substantial, with almost all sectors of the economy receiving support today.

“Today’s budget is about the here and now by supporting households and businesses through what could be a very volatile period ahead. It is therefore vital that these once-off supports will be rolled out immediately in many cases, including the new Business Energy Support Scheme.

“However, we also need to be cognisant of the current significant global growth risks, and in that context, it is also welcome that the Government outlined its plan to transfer some of the excess corporate tax revenues to the National Reserve Fund. As we move into a new era of higher interest rates, prudence must be the watchword in the coming years, which will enable us to sustainably meet the long-term challenges and opportunities facing the Irish economy and society.”

Annette Hughes, Director, Economic Advisory Services, EY Ireland on housing:

“This budget is described as a ‘budget for its time’ by Minister McGrath with the focus very much on cost of living measures, but aiming to protect the sustainability of the public finances. The ongoing issue of housing remains a key challenge for the economy. In that regard there are a number of welcome measures to boost housing supply. The new zoned land tax, which was actually introduced in Budget 2022, will see a tax levied at 3% of the market value of land zoned as suitable for residential development (and serviced), but has not yet been developed for housing. Care will be required to ensure the application of the tax doesn’t impact the overall viability of sites. There is welcome news that landowners will have the opportunity to apply to amend the zoning status of their land if they don’t agree with the designation by local authorities.

“The vacant homes tax will be levied on properties occupied for less than 30 days p.a., at a rate of three times the local property tax rate. It is specifically a measure to boost supply rather than raise revenue, so it will be interesting to see the behavioural changes that may result.

“There is relief for tenants and higher tax breaks for landlords which should support the viability of small scale landlords currently exiting the sector. On the demand side there is the retention of the Help to Buy scheme for first time buyers until end 2024, and combined with the current First Home Scheme these will provide certainty to potential first-time buyers. 

“The overriding issue remains housing supply and the focus needs to continue to be on delivery of new supply to ensure our expanding population and economic growth can be accommodated.”

Ian Collins, Partner and Head of Innovation Incentives, EY Ireland on Research and Development Tax Credits and the Knowledge Development Box:

“The Minister announced amendments to the payable element of the Research and development (R&D) tax credit scheme to align with international tax developments. Adapting our R&D tax credit scheme to ensure it continues to be among the best in class internationally is critical in order to preserve Ireland’s competitiveness with respect to attracting future R&D investments.

“It’s positive to see the Minister’s intention to extend the Knowledge Development Box (KDB) regime for a further 4 years. It is hoped with the appropriate level of reform that this regime can be enhanced to encourage greater levels of engagement across SMEs and multinational corporations alike.”

Deirdre Hogan, Partner, Tax and Law, EY Ireland on VAT:

Fuel

“Excise rate reductions in the order of 5, 16 and 21 cents per litre VAT inclusive currently apply to MGO, diesel and petrol respectively. These rate reductions due to expire on 12 October 2022 will be extended to 28 February 2023. This is a small but welcome relief extension in times of high energy costs.”

Special Exemption Order licence fee reduction

“The excise fees for an application for a special exemption order are being reduced by 50% in support of the night time economy. The excise fee of €110 per application is reduced to €55.  Generally applications need to be made once a month. The reduction will be welcomed in a struggling industry.”

Small Cider Producer Excise Relief Scheme

“Good news for cider producers. An alcohol excise relief scheme is being provided for small producers of cider and perry. A 50% excise relief will be available on up to 8,000 hectolitres of cider produced by microproducers with an annual production threshold of up to 10,000 hectolitres.”

Michael Rooney, Partner, Tax and Law, EY Ireland on Small Benefits Exemption:

“The increase in the Small Benefits Exemption was welcome news today but the devil is in the detail in that the proposed wording in the resolution published by the Department of Finance states that the exemption is only available to the first or second incentive provided to an employee.  If an employer provides an employee with two small vouchers, say for 25 euro each then the exemption is used up and the employer would not be able to pay a significant voucher later in the year, perhaps as a Christmas bonus.  This really restricts the employer and does not allow the employer flexibility in choosing what small benefits/vouchers are subject to the maximum relief and a number of employers could be caught out by this.  A more equitable solution would be to allow the employer to choose what vouchers qualify for the exemption so that the maximum benefit of €1,000 can be provided to employees.”