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Farmers can expect some good news in Budget 2021 — but they deserve more

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Minister for Finance Paschal Donohoe

Minister for Finance Paschal Donohoe

Minister for Finance Paschal Donohoe

Today’s Budget is framed against the backdrop of the unprecedented economic damage being caused by Covid-19 and the increasing prospect of a no-deal Brexit.


Income tax

The good news is that Minister Donohoe is firm in his commitment that there will be no increases to income tax in today’s Budget. The PAYE credits, rate bands, PRSI and USC are all set to remain the same.

The Programme for Government has committed to bring the earned income tax credit of €1,500 for self-employed individuals including farmers in line with the credit of €1,650 for PAYE employees.

We expect that this increase will be implemented in full in today’s Budget.

It would also be a very welcome move if the additional 3pc USC surcharge on income over €100,000 for self-employed individuals compared to a PAYE earner was removed.

This is an unfair additional tax burden aimed solely for self-employed individuals.

Succession

It is current Government policy to encourage the transfer of family farms and agri-enterprises to the next generation. Tax measures can be used as an incentive to achieve this policy.

The existing 90pc agricultural relief and the 90pc business relief from Capital Acquisitions Tax (CAT) are critical in encouraging the lifetime transfer of the family farm and agri-businesses to the next generation.

But further consideration should be given to an increase in the exemption threshold (currently €335,000) for gifts from a parent to a child, abolishing the restrictions on retirement relief from Capital Gains Tax for those over 66 years of age and reducing the current 33pc rate for Capital Gains Tax and gift/inheritance tax.

Farmers will be hoping that agricultural property is removed from the definition of commercial property, which is now subject to stamp duty at 7.5pc.

This is a huge disincentive where a farmer wishes to acquire additional land to expand his/her farming enterprise but cannot avail of the reduced stamp duty rates for Young Trained Farmers and transfers between blood relatives.

Green agenda

Tax policy will be key to driving the green agenda. Promoting green activity through tax measures and incentives is key.

While it appears inevitable that there will be an increase in carbon taxes, this will only add to the rising costs faced by farmers and agri-businesses. Tax incentives should be considered to reward sustainability measures introduced by businesses such as the adoption of low carbon alternatives.

The Government should extend the Accelerated Capital Allowances (ACA) scheme (administered by SEAI), which is due to expire on December 31.

The ACA allows businesses, including farmers, to deduct the full cost of energy-efficient equipment from their profits in the year of purchase.

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The Government should also expand the list of qualifying energy-efficient equipment to include emission-efficient equipment.

Brexit

Brexit will be one of the dominant themes. Both Minister McGrath and Minister Donohoe have already stated that the Budget will be based on the assumption of a disorderly Brexit.

Given the importance to the Irish economy of exports to the UK by the agri-sector, it is vital that the Budget includes direct supports to protect agri-businesses from the fall-out of Brexit.

We expect that the Government will continue and extend schemes, like the Brexit loan scheme and future growth loan scheme, all of which would be welcome.

There is also a need, however, to include in the Budget funds to provide direct support to farmers impacted by reduced prices for their products.

While all Irish businesses want the successful negotiation of a free trade agreement without tariffs between the EU and the UK, a significant change to the trading relationship with the UK is imminent regardless of the outcome.

The most significant disruption will be in the area of customs. Agri-businesses exporting to the UK are facing a myriad of new requirements and paperwork. The Government should provide supports to allow people to retrain and to assist employers to provide training for their employees in order to be able to manage these new Customs requirements.

Overall, it is essential that farmers and Agri-businesses are supported in these challenging times and that any changes announced in today’s Budget do not put undue additional financial pressure on those working in this sector.


Joan Hearne is a senior tax manager with PwC South East Practice


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