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Budget 2018

Budget 2018 – Key Points

Minister for Finance Paschal Donohue delivered the Budget 2018 speech this afternoon, with the announcement of additional revenues of €830 million to bring the total package of new spending and tax cuts to €1.2 billion. €898 million of this will be allocated to spending and there will be tax reductions worth €335 million.

Economy

  • The Government expects continued economic growth of 4.3% this year and 3.5% in 2018
  • Unemployment currently stands at 6.1%, expected to fall to 5.7% next year
  • Corporation tax rate to remain unchanged at 12.5% and remain a core part of our competitive offering
  • Rainy Day Fund worth at least €1.5 billion to be established with annual contributions of €500 million to commence in 2019

Incomes and Benefits

  • Standard rate band for income tax increased by €750 to €34,550 for single earners
  • 5% USC rate bring reduced to 2% with the ceiling for this new rate rising from €18,772 to €19,372
  • 5% rate of USC to be reduced to 4.75%, reducing top marginal rate of income tax up to €70,044 to 48.75%
  • Working group to be set up to plan the process of amalgamating USC and PRSI over the medium term
  • Earned income credit for the self-employed to increase by €200 to €1,150 per year from 2018
  • All social welfare payments to increase by €5 with a further €5 increase per week in the State pension. Christmas bonus payment of 85% to be retained.

Commercial Property

  • Stamp duty on commercial property transactions to be increased from 2% to 6%
  • Stamp duty refund scheme to be introduced for land made available for residential development, subject to certain conditions including a requirement that developers must commence relevant development within 30 months of the land purchase
  • Seven-year retention period for CGT relief to be reduced to four years
  • Vacant site levy to be increased from 3% in 2018 to 7% in 2019 and subsequent years

Housing

  • Government allocating €1.83 billion for housing in 2018, including:
    • An additional €149 million for the Housing Assistance Payment Scheme
    • €116 million in funding for homeless services, up by €18 million annually
    • €115 million allocated to the Social Housing Current Expenditure Programme, an increase of €31 million
    • A further €500 million to be provided for direct building, leading to an additional 3,000 new build social houses by 2021 in addition to the existing 47,000 target
  • New body, Home Building Finance Ireland (HBFI), to use NAMA’s experience and increase the availability of funding to residential developers. This will be funded by the sale of assets from the Irish Strategic Investment Fund to the value of €750 million.
  • Help-to-Buy scheme to be retained

Brexit

  • ‘Brexit Loan Scheme’ of up to €300 million being made available to SMEs (including food businesses) to help with short term working capital needs
  • This scheme is supported by the European Investment Bank Group, the European Commission and the Strategic Banking Corporation of Ireland
  • VAT rate for tourism and services sector to remain unchanged at 9% to offset impact of sterling devaluations

Aside from the obvious impact on the portfolio values of the existing holders of commercial real estate, the decision to treble the rate of stamp duty on commercial property deals overnight will have a seriously unsettling effect on any current transactions. We also expect that it will reduce the number of transactions, as the cost of trading increases, thus encouraging longer holds.

One particular concern is the potential effect of this increase on the nascent Build-to-Rent (PRS) sector. The proposed rebate on residential development sites is expected to be minor relative to the negative impact on end values of completed properties. This important sector is still in its infancy in Ireland but has the capacity to provide considerable housing stock in urban areas. With housing provision central to the Government’s agenda for 2018, it may have been wiser to exclude this sector from the stamp duty hike altogether. We await clarification on this point.

On a positive front, although the income tax cuts are small, they do indicate to Irish consumers that the days of austerity budgets are now firmly behind us. This combined with further gains in employment and economic growth bodes well for continued growth in the retail sector.

A focus on speeding up the delivery of housing is also broadly welcomed, as this will have a knock-on effect on Ireland’s attractiveness in terms of Brexit relocation decisions, which will benefit the office sector as well as the wider economy. We also welcome the reduction in the holding period for CGT relief from seven to four years, given its potential to free up land for development together with allowing early cycle investors to exit positions without attracting tax on value gains. This in turn should add stock to the market where demand is outstripping supply for quality investment assets.

Kate Ryan, Research Analyst

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Reports (PDF):

Budget 2018 Statement of the Minister for Finance and Public Expenditure and Reform

Property Industry Ireland – IBEC – Pre-Budget Submission 2018

SCSI Pre-Budget Submission 2018