Budget 2017 - Key messages
1. Stay the course on fiscal policy
While it is important that the Government does not overreact in framing Budget 2017, Ireland’s strategic interests must be prioritised while the post Brexit scenario remains highly fluid. This should involve policy choices which will solve strategic supply side problems and protect those industries most likely to be adversely affected by the immediate volatility. The Government should not deviate from plans for a modestly expansionary budget for 2017. This would include budget day measures totalling €1 billion and seeking derogation from the EU to invest a further €1 billion in social housing outside the current fiscal rules.
2. Send a positive signal through wise investment
Through investment in crucial economic and social capacity at home, Budget 2017 can send a message of confidence to the world during this period of uncertainty. In previous crises the first budget item to go was capital. This simply cannot be repeated if the scope for future discretionary spending diminishes. Given the low carry costs of debt, strong nominal growth rates, a primary surplus, and considerable infrastructure gaps, investment can be achieved while reducing the deficit in the prudent manner. Certain investments – not least those in housing – can replace inefficient recurrent spending with capital solutions. This will prove more effective and cost efficient over the longer term.
In the context of Brexit, there is now an increased urgency for the Government to negotiate flexibility in the application of EU fiscal rules which currently place inappropriate and unnecessary restrictions on investment. Irish business supports a pragmatic, rules-based approach to the management of day-to-day spending and taxation. However, spending on vital capital investment projects should be treated in a manner more akin to that which obtains in the private sector.
3. Create a level playing field with the UK for SMEs
A major objective of the upcoming budget must be the provision of support to those industries for which the immediate fall-out from Brexit is greatest. These include some of our largest employers – the SME community, manufacturing and tourism in particular. Helping these sectors maintain a competitive edge will be an important factor in overcoming the challenges that Brexit will pose. The Government must ensure that enterprises do not face any regulatory, labour cost or tax increases while the current period of uncertainty and exchange rate volatility persists. In addition, potential trade restrictions post Brexit and the more preferable tax treatment of SMEs in the UK raise the possibility of Irish SMEs servicing that market from within the UK itself rather than by exporting from Ireland. As such, the need to level the playing field in relation to the tax offering for indigenous business has never been more urgent. We show that this can be achieved by radically reforming our entrepreneurs’ CGT regime, along with improving our incentives for investment, innovation and upskilling in SMEs.
4. Align economic and social priorities through housing
In Budget 2017 the Government should seek a temporary derogation from the European Commission to spend €1 billion outside the fiscal rules in delivering an additional programme of social housing beginning in 2017. It should also introduce a new model of social housing provision based on that of the Northern Irish Housing Executive. In this submission, Ibec outlines proposals for a number of reforms in the housing sector which will better serve our requirements over the long term.
5. Retain Ireland’s edge for highly skilled workers
While Brexit is not the outcome Ireland would have wished for, Ireland remains well positioned to benefit from new investment opportunities. Since the advent of the OECD base erosion and profit shifting (BEPS) project, Ibec has drawn attention to the changing global environment where capital is following highly skilled labour. The positioning of Ireland in a post-Brexit world may mean an acceleration of this trend as multinationals, and not just those in financial services, look for an attractive home within the EU. Along with investment decisions, which will affect standards of living, including housing, access to education and public infrastructure, Budget 2017 must address key tax issues – particularly the treatment of share options – which currently make Ireland a less attractive location for more highly skilled workers.