Tax gains in Budget 2017 are going to employees
Published 12/10/2016 | 02:30
Not a bad Budget for employees. The USC reduction is grabbing the headlines and while it may not provide a huge benefit for most employees, it does honour one of the commitments made by Michael Noonan in the Programme for Partnership Government.
Missing, though, at least for this year, is a move to honour the commitment to raise the Small Benefits Exemption (the 'tax free voucher') from €500 to €650.
This is equivalent to approximately one week's wages for those on the average industrial wage.
Also missing is any move to start reducing the PAYE tax credit for employees earning over €100,000, which was hinted at in the Income Tax Reform plan published a few weeks ago.
Another commitment made in the Programme for Partnership Government - which, had it come to fruition, would have been the real game changer for employer-employee relations - would have been changes to the rules for companies giving shares to their workers.
Mr Noonan, however, announced that any changes will be introduced in Budget 2018.
Share schemes can solve many problems. The employer is able to pay employees without having to raise cash; the employee can accumulate some capital above and beyond what their wages might allow.
Share schemes aren't immune from income tax, but the snag always is the income tax, USC and PRSI that has to be paid on the value of the shares before any cash can be realised from their value. Budget 2018 will hopefully change that.
The tax should then fall due when the shares are finally sold by the employee, and that will make all the difference.
There's research to show that companies partly or entirely owned by their employees are more profitable, create more jobs and pay more taxes than their competitors without employee ownership.
Deferring the tax charge on a grant of shares is a tax relief that can benefit businesses and their employees alike without any direct exchequer cost - it defers, rather than wipes out, the tax liability.
Just as importantly, it would put the Irish employee share ownership regime into line with the UK model.
Post Brexit, that's a real consideration.
The UK will have to compete very aggressively to retain its skilled employees.
Share ownership schemes have proven effective in the past, particularly for smaller entities.
We don't have to race towards the bottom in competing with the UK in tax terms, but as a country with the only land border with the UK, it's prudent for us to have comparable tax incentives and offerings.
Changes in this area will be welcome, particularly given the current climate.
On balance however, the USC reduction means it wasn't a bad Budget for employees.
Brian Keegan is Director of Taxation with Chartered Accountants Ireland