Thursday 19 October 2017

Varadkar on Budget 2018: 'No fireworks' and 'no big bonanza' but a step forward

  • Revealed: Modest tax cuts of €250 for middle-income earners in Budget
  • Free childcare hours for toddlers
  • Stamp duty to rise to 5pc
  • Minimum wage to be raised by 30c
  • Sugar tax, a hike on cigarettes, and higher carbon taxes
  • Government warned move could harm housing market further
  • Social welfare package to cost up to €450m
Leo Varadkar. Picture: Colin Keegan/Collins
Leo Varadkar. Picture: Colin Keegan/Collins

Niall O'Connor and Kevin Doyle

BUDGET 2018 will have "no fireworks" and no "big bonanza", according to Taoiseach Leo Varadkar.

But he said the series of tax and spending measures will ensure the country's books are balanced, as well as giving a little back to hard working families.

Speaking on his way into government buildings ahead of Cabinet, Mr Varadkar confirmed that the budget has been agreed with Fianna Fáil and the Independent Alliance.

And he said it will result in the biggest health and education budgets ever - resulting in more teachers, nurses and doctors.

Isme says finance minister Paschal Donohoe ‘must act prudently’ in the penultimate budget before Brexit. Photo: Collins
Isme says finance minister Paschal Donohoe ‘must act prudently’ in the penultimate budget before Brexit. Photo: Collins

"It's a good budget overall. There are no fireworks , no big bonanza. But it is another small sustainable step in the right direction for our county."

Independent.ie forecasts that Budget 2018 will deliver modest tax cuts worth around €250 for middle-income earners.

It will also contain measures aimed at supporting families, with free childcare hours for toddlers and a 50c reduction in prescription charges for everyone with a medical card.

Social welfare payments will all go up by €5, including the pension, dole and lone parents' allowance.

In the closing days of the negotiations, Fianna Fáil leader Micheál Martin has also secured increases targeted at pensioners in the fuel and phone allowances next year.

The modest increases will seek to reverse cuts brought in during the austerity years.

To pay for the additional spending, Finance Minister Paschal Donohoe will increase a range of taxes, with 50c being added to the price of a packet of cigarettes. The Budget will be announced at 1pm today.

Mr Donohoe will point to the measures aimed at middle-income families. He will also say the Government is trying to do the right thing for the country and claim nobody is being left behind with the Budget.

Other leaks include:

Stamp duty

Finance Minister Paschal Donohoe is expected to raise stamp duty on commercial property transactions to as high as 5pc, which last year raised €256m at a 2pc rate.

However, Savills Ireland has warned that the rise could worsen the housing shortage as developers will struggle in the face of higher construction costs to bring properties to the market, the paper reports.

The Construction Industry Federation (CIF) also said that the cost of building “has resulted in the greatest shortage of supply in this sector in the history of the State”.

Minimum wage

The minimum wage is set to rise by 30c per hour to €9.55. While the move is likely to be welcomed by workers, the government is set to receive some backlash from the business sector particularly in light of Brexit.

Tax cuts

A cut to the much-hated USC and a tweaking of income tax bands will be included in next week’s Budget following a compromise between Fine Gael and Fianna Fáil in an effort to ensure that the budget will pass.

As part of a compromise deal being hammered out between Finance Minister Paschal Donohoe and Fianna Fáil, it has been agreed that a double-edged approach to personal taxation will be taken.

The USC cut will help the ‘squeezed middle’ earning up to €70,000 a year, while the tax band changes will benefit people on salaries over €33,800.

However, the net increase in workers’ pay packets is likely to be less than €20 a month.

The move is expected to cost in the region of €300m.

Pension and social welfare payments

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Photo: Stock
 

It is understood that details of a social welfare package are still being finalised.

The Sunday Independent revealed that the entire cost of the social welfare package being discussed by the Government could come to €450m.

Fine Gael has previously indicated that it does not believe in raising one payment over another and an increase of €5 is being looked at across-the-board.

However, it is understood that the government is considering delaying the introduction of the hikes to mitigate the cost.

Housing

It is expected that the Help to Buy scheme is to be retained, with little or no amendments to the first-time buyers grant scheme.

Homeowners are expected to further benefit as mortgage relief, which was due to expire at the end of this year, may be extended.

Families

Parents are not getting their hopes up ahead of Tuesday's Budget with no changes to child benefit expected and very slight increases in other social welfare payments.

It is expected that the bereavement grant will be brought back but will not match the previous once-off payment amount.

Under previous commitments to increase the threshold on inheritance tax from a parent to a child to €500,000 another increase in the threshold is expected this year. In last year's budget it was raised to €310,000 but it is unlikely that this year will see the ceiling raised to the full €500,000.

Christmas bonuses for social welfare recipients will be paid but not at the full 100pc rate.

Diesel

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The price of diesel is expected to remain unchanged in Budget 2018, despite speculation it could be equalised with petrol.

According to the AA the average price of a litre of diesel is currently €1.22. This already includes taxes totalling almost 73c.

Petrol is around €1.35 at the average pump, including 86c in tax.

Meanwhile, the Budget will include a number of initiatives aimed at encouraging a greater uptake of electric vehicles.

A series of long-term measures are under consideration, with a focus on incentives to encourage a change in driver behaviour.

It is understood initiatives are being planned in particular to encourage the purchase of second-hand electric vehicles.

Cigarettes and alcohol

While diesel is likely to be left untouched, sources say excise duty on cigarettes and tobacco will rise.

It will be the sixth consecutive budget to see an increase in the price of cigarettes.

Last year, then finance minister Michael Noonan added 50c to a packet of 20 cigarettes, bringing the price to more than €11 for the first time. A 50c increase is also expected

It is not yet clear whether Finance Minister Paschal Donohoe has any plans to change the excise duty on alcohol.

Sugar Tax

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Sugar tax Photo: PA
 

A sugar tax is certain to feature in Mr Donohoe's Budget speech but will not be introduced before April 2018.

In an attempt to raise extra revenue the Government are exploring a number of tax initiatives with a charge on fizzy drinks top of the list.

It is expected the ‘sugar tax’ will come into force for April 2018, on the same day that a similar levy is being introduced in the UK.

Education

Fianna Fáil have sought a number of measures to bring about improvement in education, among them an increase in guidance counsellors, investment in third level and a reduction of the pupil-teacher ratio by one point to 25:1.

The party wants to increase taxes for employers to fund investment in third-level education.

Micheál Martin’s party has proposed increasing the National Training Funding levy on employers via PRSI by 0.1pc, which would raise an additional €66m. 

In a Budget document seen by Independent.ie Fianna Fáil suggests increasing the employer tax from 0.7pc to 0.8pc.

This would be on top of another €44m the party believes should be taken from Exchequer funding to increase grants to third-level institutions.

In terms of public services, the figures of over 500 new teachers and at least 800 new gardai have been discussed.

Health

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Health Minister Simon Harris. Photo: Frank McGrath
 

Mr Varadkar has indicated the budget for health will be increased next week (it is expected that all departments will see a budget increase).

Scoliosis services will likely receive extra funding and a reduction in prescription charge fees for 65 to 69-year-olds is also expected.

However, it is not fully clear what additional measures will be announced on Tuesday. The Taoiseach has been critical of the HSE's overspend in the run up to Budget day telling the Dáil:

“The word around the campfire in the HSE is always that the cupboard is bare yet the facts say otherwise. We have the biggest health budget in the history of the State,” he said.

“We have the biggest health budget in the history of the State and it will rise again next year. It will not be long before we are in the top two or three in the world in terms of spending per capita."

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