In light of the current cost of living crisis and pressure due to consumer price inflation the Government has come under significant pressure, both from opposition parties and indeed from its back benches, over the last number of weeks to introduce an “emergency” budget.

Over the last number of years, we have been living in an era of low inflation and have even seen the unprecedented impact of “negative interest rates”. This is coming to an end as Central Banks are beginning to increase interest rates. In addition the crisis in Ukraine has created huge uncertainty in relation to energy supplies and therefore prices. The utility providers have all been increasing their prices, Electric Ireland last week announcing that it was increasing its electricity unit rate by 11.35% and its gas unit rate by 31.9% with effect from 1 August. This has been confounded somewhat by the reports in the UK media last week that Britain could stop supplying gas to the EU in the event of shortages. Whilst Ireland may not be overly dependent on Russia for energy it is very dependent on the UK for gas.

This double whammy of increasing utility costs and mortgage costs is massively impacting on Irish taxpayers. It is also worth noting that food prices are increasing and unfortunately with the events in Ukraine costs are expected to increase further. Certainly as the Ministers for Finance and Public Expenditure and Reform have stated, we are living in a “more shock prone world”, with a very difficult Winter ahead of us (and Covid hasn’t gone away, you know)!

Against this backdrop yesterday the Government published the Summer Economic Statement (SES). In addition, the Government whilst resisting pressure for an emergency budget, has decided on a “middle ground”, bringing forward Budget 2023 by two weeks from 11 October to 27 September. The Government is fortunate in that the Exchequer has generated circa €37bn in tax receipts for the six month period to the end of June, up 25% on the same period last year. However, caution is required in that the surplus includes bumper corporation tax receipts. Ireland’s corporate tax take is very much dependent on a relatively small number of very large corporate taxpayers, leaving Ireland somewhat exposed and over reliant on such receipts. Diversification is the buzz word that springs to mind!

There has been much comment over the last number of years on the “squeezed middle”. The greatest increase in income tax rates is between the standard rate of 20% and the higher rate of 40%, which occurs at a level of €36,800 at present. It is worth noting that the headline income tax rates of 20% and 40% are really misnomers as they exclude the impact of the USC and PRSI (income taxes, just by another name). The top rate of tax (including employee PRSI and USC) is actually 52% for employment income and applies to all income in excess of €70,044. There is also still the anomaly that for certain self-employed individuals their top rate of tax is actually 55% (to include PRSI and USC).

If the costs of living is going up and your net (take home) pay is not increasing in line with the costs of living you are effectively taking a pay cut. Many people feel that they are working harder for less, which in turn leads to wage inflation. The Ministers for Finance and Public Expenditure and Reform have stated in the Summer Economic Statement that “The priority will be to ensure that workers are not exposed to higher taxation simply because of inflation”. This will be critical to provide some level of relief for hard pressed taxpayers.

Contact Us

If you would like to know more about Budget 2023, contact our Tax Team:

• Richard McAufield, Senior Tax Manager, (01) 6440100
• Ronan McGivern, Tax Partner, (01) 6440100

Disclaimer: While every effort has been made to ensure the accuracy of information within this update is correct at the time of publication, RBK do not accept any responsibility for any errors, omissions or misinformation whatsoever in this update and shall have no liability whatsoever. The information contained in this update is not intended to be an advice on any particular matter. No reader should act on the basis of any matter contained in this update without appropriate professional advice.