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IFA Report on the 2009 Budget
Introduction – Budget 2009
Part I
Government Expenditure in relation to Agriculture/
Estimates for 2009
Part II
Taxation
Part III
Social Policy
Part IV
The Public Finances and the National Economy
Overview of 2009 Budget
INTRODUCTION – BUDGET 2009
On 3rd September 2008, the government, taking account of the deterioration of the Irish
economy, and in particular the major shortfall in tax revenues, announced its decision to
present the budget for 2009 on October 14th 2008, rather than the usual date of the first week
in December.
The delivery of the budget three months before the end of the year may impact on the
accuracy of the projected revenue and expenditure figures for 2009, which are based on the
expected 2008 outturn. Unlike previous budgets, where receipts and expenditures for the year
up to December 1st were available, the figures that underlie the estimated outturn for 2008
and projected expenditures and revenues for 2009 are based on information that is available
up to end of September 2008 only. In general, tax revenues are highest in the final quarter of
the year. As a result, the final tax returns for the end of the year may differ significantly from
those that have been estimated at this point in the year. This may then impact on the actual
expenditure that will occur in 2009.
The largest contributor to the decline in government finances has been the fall in tax revenues
received in 2008 compared with the projected tax revenues estimated at the start of the year.
The tax revenues for 2008 are expected to be approximately €42.4 billion, which is 13.1%, or
€6.4 billion below the projected figure of €48.8 billion, which was estimated at the start of
2008. At the same time, current expenditure on the public services is running slightly above
expectations, with projected net expenditure of €40.9 billion by end 2008, which is 4.5%
above the €39.2 billion estimated at the start of the year.
Overall, after a number of years of budget surplus, the government has now projected a very
large budget deficit (i.e. borrowing requirement) of €10.4 billion, or 5.5% of GDP in 2008.
This differs greatly from the original estimates at the start of 2008, which projected that the
government would run a small budget deficit of €1.8 billion or 0.9% of GDP. In 2009, this
trend is set to continue. With lower expected tax revenues, due to a contracting economy, and
with expenditure pressures remaining, the government is projecting a budget deficit of over
€12 billion or 6.5% for 2009.
This report is divided into the following sections:
 Part I outlines the changes in government expenditure in relation to Agriculture for
2009;
 Part II identifies the main taxation measures that have been introduced in the 2009
budget;
 Part III outlines the social policy changes in the 2009 budget; and
 Part IV provides a summary of the public finances and national economy.
Finally, an overview of the main measures of Budget 2009 is presented, including the main
budgetary decisions impacting on farmers.
1
PART 1:
GOVERNMENT EXPENDITURE IN RELATION TO
AGRICULTURE – ESTIMATES FOR 2009
Department of Agriculture, Fisheries and Food (DAFF)
The following is a summary of the gross expenditure by the Department of Agriculture,
Fisheries and Food (DAFF), the receipts to the Department (mainly from the EU), and the net
expenditure for 2008 and 2009. (The estimates do not include expenditure fully funded by
the EU, such as the Single Payment, but gross expenditure includes measures part-funded by
the EU, and the EU funding element is deducted under “receipts”).
DAFF (€m)
2008 estimate
Gross expenditure
Receipts
Net expenditure
2009 estimate
1,868
2008 forecast
outturn
2,063
1,803
% change from 08
outturn
-12.6%
413
413
363
-12.1%
1,455
1,650
1,440
-12.7%
Relative to the 2008 forecast outturn, gross expenditure by the DAFF for 2009 is down by
12.6%. Net expenditure by the DAFF, i.e. the cost to the National Exchequer, is down by
12.7%.
Gross Expenditure
Pay and administration
Main Items of Expenditure by DAFF (€m)
2008
2008 outturn*
2009
estimate
estimate
311.7
311.7
308.8
% change from
2008
-0.9%
Research and training
42.5
42.5
37.0
-12.9%
Food safety, animal health and welfare
185.6
185.6
181.4
-2.3%
o/w TB & Brucellosis
o/w BSE
o/w Suckler herd welfare/quality
Market supports
52.4
12.2
33
19.4
57.5
12.2
33.0
19.4
56.9
11.0
44.0
27.0
-1.0%
-9.8%
33.3%
39.2%
Disadvantaged Areas
257
257
220.4
-14.2%
REPS
332
310
355.0
14.5%
Land mobility
66
60
56.7
-5.5%
o/w Early retirement
o/w Installation
Development of Agriculture & Food
56
10
216
50
10
411
47.0
10.0
196.0
-6.0%
0.0%
-52.3%
o/w Farm Waste Management
o/w Farm Improvement Scheme
Forestry and Bioenergy
129
15
121
377
11
121
125.0
15.0
127.7
-66.8%
36.4%
5.5%
Teagasc
132.5
132.5
122.0
-7.9%
Bord Bia
27.5
27.5
25.0
-9.1%
Fisheries
128.2
128.2
117.7
-8.2%
Other Services + Food Aid
28.8
28.8
28.9
0.5%
(* including some IFA estimates)
It should be noted that the 2008 estimated allocation for the DAFF of €1,456 million was
approximately 25% above the €1,165 million spent in 2007. In addition to this a
supplementary budget allocation of €195 million was made in the third quarter of 2008 for
the Farm Waste Management Scheme.
2
MAIN CHANGES IN EXPENDITURE OR POLICY BY DAFF
Food Safety, Animal Health and Welfare - Suckler Cow Welfare Scheme
The funding for the Suckler Cow Welfare Scheme is to be restricted to €250m or €50m p.a.
as per the Partnership deal. Based on Department of Agriculture application estimates of
960,000 cows, the full annual costs would amount to €77m p.a., leaving a funding shortfall of
€135m or 35%.
The Department has confirmed that they will pay the full €80 per cow in 2008/09. In the
subsequent 4 years payment could be as low as €40 per cow depending on the final level of
participation. In addition, because of the inadequate funding provision, payment may be
delayed by up to 12 months.
REPS
The Budget for REPS will increase by 7% bringing the allocation to €355m in 2009. This
should be sufficient to meet this demand-led scheme with up to 60,000 farmers in the
scheme.
Disadvantaged Area Payments
A reduction of €34m in Disadvantaged Area payments will have a significant impact on hill
areas and full-time drystock farmers. The allocation to the scheme in 2009 is €220m, which
represents a 14% reduction.
To implement the reduction the maximum number of hectares eligible for payment decreases
from 45 ha to 34 ha. This represents a maximum cut in Mountain and Severely Handicapped
areas of €1,055 and €905 in less Severely Handicapped Areas. There is no cut for farmers
who have less than 34 ha. In addition the minimum stocking level of 0.15 lu per ha will
increase (stocking level not yet decided).
IFA initial estimate is that the average loss will be €566 for around 60,000 farmers. The
maximum payment in 2009 in mountain areas will be €3,401, severely handicapped is €3,264
and €2,797 in less Severely Handicapped Areas.
Land Mobility
The Early Retirement and Installation Aid Scheme have been suspended for applications
from close of business on 14th October. The allocation to both schemes for ongoing
expenditure in 2009 is reduced by €10m to €56.7m.
Forestry
€127m is allocated to Forestry, which is a 6% increase. The Department has indicated that
6,000 ha will be planted next year, which will be in line with the plantations in 2008.
Development of Agriculture & Food
A total of €196m is allocated to investment in the Agriculture Sector. Of this €125m is
allocated to the Farm Waste Management Scheme. This is totally inadequate to meet the
carryover cost of the FWM to an estimated 17,000 farmers of around €425m in grant aid. In
2008, €377m was paid out to about 10,500 farmers.
€15m is allocated to the FIS which is the equivalent amount allocated in 2008. 5,000 farmers
who applied between the 22nd and the 31st October are still not being approved to join the
scheme.
3
Other Government Departments – Expenditure On Agriculture/Rural Issues
Community, Rural and Gaeltacht Affairs
The following table contains the elements of most direct relevance to farmers and farm
families.
Expenditure (€m)
2008 est. 2009 est.
Rural Development (incl. LEADER)
23
27
CLAR
21.2
18
Rural Social Scheme
50.3
50.9
Rural Recreation & Rural Development Schemes
8.6
7.1
Social and Family Affairs
The allocation for Farm Assist was €85.2m in 2008 and €88.5 million in 2009.
Environment, Heritage and Local Government
The allocation for the National Farm Plan Scheme under the National Parks and Wildlife
Service heading is €5 m
4
PART II: TAXATION MEASURES
INCOME TAX
Personal Taxation
The main changes to personal income taxation, which take effect from 1 January 2009, are as
follows –
Changes to income tax
New standard rate bands from 1 January 2009:
Current
Proposed
Change
Single
€35,400
€36,400
€1,000
Married one income
€44,400
€45,400
€1,000
Married two incomes
€70,800
€72,800
€2,000
Income levy
A new income levy of 1% on income up to €100,100 and of 2% on income in excess
of €100,100 has been introduced (this excludes social welfare payments,
contributory and non-contributory pensions).
Note: The levy is paid on gross income, before deductions for capital allowances or
contributions to pensions.
Tax credits
There is no change in the Personal Tax Credit or PAYE Tax Credit.
Mortgage Interest Relief
The rate of mortgage interest relief is being increased from 1 January 2009 for first time
buyers from 20% to 25% in years 1 and 2, and to 22.5% in years 3, 4, and 5. The additional
relief will be available to new first time buyers and buyers who have bought a house in the
last 4 years.
The rate of mortgage interest relief for non-first-time buyers is being recuded from 20% to
155 from January 2009.
DIRT
The rate of retention tax on deposit interest and rate of tax on life assurance policies and
investment funds will be increased from 23% to 26% from January 2009.
Health Expenses
Health expenses relief will be granted at the standard rate only from 1 January 2009, with the
exception of nursing home expenses, which will be standard rated from 1 January 2010.
Pensions
The annual earnings ceiling limit for determining maximum tax relievable contributions for
pension purposes is being set at €150,000 for 2009 as compared with the 2008 limit of
€275,239.
5
VAT
The standard rate of VAT will be increased from 21% to 21.5% with effect from 1 December
2008.
EXCISES
Mineral oil and petrol
The excise on petrol will be increase by 8 cent per litre with effect from midnight on 14
October 2008. This increase will not apply to diesel.
FARM TAXATION
Stamp Duty Relief for Young Trained Farmers
Extended for four years to 31 December 2012.
Stamp Duty for Farm Consolidation
Extended for two years to 30 June 2011.
Stock Relief
Extended for two years to 31 December 2010.
Farm Pollution Control Capital Allowances
Extended for two years to 31 December 2010.
Flat rate VAT addition
The flat rate farmer VAT addition remains unchanged for 2009 at 5.2%.
STAMP DUTY
Currently the top rate of stamp duty on non-residential property (including farmland) is 9%,
which applies to amounts over €150,000. The top rate has been reduced to 6%, applying on
amounts over €80,000. This change is effective on transactions executed from 15th October
2008.
CAPITAL GAINS TAX
The rate of CGT has been increased by 2% from 20% to 22%, applying on disposals made
from 14th October 2008. The payment dates for CGT have also been changed.
THIRD-LEVEL STUDENT SERVICES CHARGE
The third-level student services charge may increase in 2009/2010 up to €1,500 in individual
institutions.
6
PART III: SOCIAL POLICY
Social Welfare Weekly Rates (from January 2009)
Main Social Insurance/Assistance Rates (€/week )
2008
2009
Increase(%)
State Contributory Pension
Personal rate (<80)
Incl. qualified adult <66
Incl. qualified adult >66
223.3
372.1
423.7
230.3
383.8
436.6
3.1%
3.1%
3.0%
212
352.1
219
363.7
3.3%
3.3%
197.8
329.1
204.3
339.9
3.3%
3.3%
24
26
8.3%
State Non-Contributory Pension
Personal rate (<80)
Incl. qualified adult <66
Jobseekers Allowance/ Farm Assist
Personal rate
Incl. qualified adult
Increase for Qualified Child
General
Farm Assist
Farm Assist income thresholds and rates will increase in line with the increase in the
Jobseekers Allowance and the Increase for Qualified Child. However, the calculations are
somewhat complex because of the existence of both the 30% income disallowance and the
child disallowance.
IFA will prepare a separate information note on the changes to Farm Assist shortly.
Children
For children aged 18, a half rate Child Benefit payment will be made from January 2009.
From 2010, entitlement for Child Benefit will cease once the child has attained the age of 18
years (to compensate social welfare and low-income families for this, the Qualified Child
payment in respect of children aged 18 will increase to €41).
Medical Card Eligibility
Automatic entitlement to a medical card is being ended for over 70s.
An annual cash grant of €400 will be paid to people over 70 who do not qualify for a medical
card or GP Visit card and whose weekly gross income is up to €650 (€1300 for a married
couple).
7
PART IV : THE PUBLIC FINANCES AND NATIONAL ECONOMY
Budget Balance (Budget surplus or deficit):
The challenge faced by the government in framing a budget is to get a balance between the
expected revenues that will be generated through taxation and the expenditure requirements
of the economy. In 2008, due to a downturn in economic activity in Ireland, the tax revenues
have fallen significantly, while expenditure requirements have stayed steady or risen slightly.
Therefore, the government will be required to run a budget deficit in order to make up the
disparity between its revenue earned and expenditure required. A requirement under the EU
“Stability and Growth Pact” (SGP) is for member states in the euro to normally have
balanced budgets, with a limit on budget deficits to not exceed 3% of GDP in years of
economic downturn. The measure of budget balance used is termed the General
Government Balance (which is a wider definition than just the exchequer balance).
The projected General Government balance for 2008 in last year’s budget was a deficit of
€1,845 million or 0.9% of GDP; the outturn was much less favourable, with a projected end
of year deficit of €10,395 million, or 5.5% of GDP. The 2009 post-Budget estimate is a
General Government deficit of €12,162 million or 6.5% of GDP. These projected figures are
significantly above the 3% deficit limit. But the rules on the SGP are flexible to allow for a
deficit that has occurred when it is the result of negative annual GDP growth. As this is the
case with Ireland in 2008 and projected for 2009, the breach of the 3% limit should not incur
a penalty for Ireland.
Year General Government Balance G.G.B. as % of
(€m)
GDP
2004
2,117
1.40%
2005
497
0.30%
2006
3,980
2.30%
2007
900
2.23%
2008
-10,375
-5.50%
2009
-12,162
-6.50%
(- = Deficit)
1% of GNP (€1,584m in 2009) is put into the National Pensions Reserve Fund (NPRF)
annually to help pre-fund future pension liabilities of the state (both PRSI and public service
pensions). This does not affect the General Government Balance as it is accounted for as a
transfer of an asset rather than as expenditure. A review of the NPRF is currently being
conducted, which will be completed by the end of the year.
General Government Debt:
The key measure of government debt is the General Government Debt : GDP ratio. The
general government debt: GDP ratio stood at 25% in 2007. The ratio rises to 36% in 2008,
and is forecast to rise to 43.4% of GDP in 2009, and to 47.5% by 2010. While Ireland has had
one of the lowest debt: GDP ratios in the EU (with average EU25 figure at 60%), the budget
data shows that Ireland’s debt level is rapidly increasing. The level of Government debt in
2008 is approximately €67.4 billion.
8
The Spending/Taxation balance and the Role of Economic Growth:
The budget each year sets out the Government's priority as regards the balance between (i)
public expenditure, (ii) taxation adjustment and (iii) budget surplus or deficit. The rate of
economic growth has a crucial impact on the growth in tax revenue and thereby the growth in
public expenditure. The table below outlines the pattern of growth in real GNP in the
economy since 2004.
Year
2004
Growth in Real GNP (%)
3.70%
2005
5.80%
2006
6.30%
2007
4.10%
2008
-1.60%
2009 *
-1.00%
* estimate
Whereas the growth rate for 2008 projected in last year’s budget was 2.8%, due to a
contraction of the economy, the expected outturn will be a negative growth of –1.6%. For
2009, the government is projecting a further 1% decline in the size of the economy.
Public Expenditure:
Net Current Expenditure and Public Service Pay
The following table gives the trend in the net current expenditure on the public services.
The 2009 Budget outcome provides for a modest increase of 2.6% in current expenditure,
mainly as a result of an 8.4% increase in spending on Social Welfare, a 2.7% increase in
spending on education and 2.1% increase in spending on Health. Spending in all other main
areas is broadly static or slightly reduced.
Net Current Expenditure on the
Public Services
€m.
% Increase
2004
27,247
7.1%
2005
29,723
9.1%
2006
32,921
10.8%
2007
37,100
12.7%
2008
40,943
10.4%
2009
41,988
2.6%
Year
The net cost of the exchequer pay and pensions bill included in the above is €18,826 m in
2008 and €19,448 m in 2009, an increase of 3.3%. Approximately 41% of pay goes to Health
and 33% to Education.
The budget outlined a programme of public service reform, focussing on public service pay
and numbers. Following the report from the Task Force on the Public Services due in
November, a review of public service numbers in all branches of government is to be
undertaken to assess whether resources are being used efficiently. In addition, a targeted
9
voluntary early retirement scheme will be introduced for the HSE. This scheme will be
extended to other areas of the public service where surplus staff are identified.
The number of State bodies and agencies will be reduced by 41, and the number of army
barracks will be reduced. Finally, pending a review of the decentralisation programme in
2011, further implementation of the remaining decentralisation programme will be deferred.
Capital Expenditure
The following gives the trend in voted capital expenditure on the public services for recent
years, and the provision for 2009 of €7,765 million, a decrease of 8.8 %.
Growth in Net Capital Expenditure
Year
€m.
% Increase
2004
5,398
0%
2005
5,835
8%
2006
6,631
14%
2007
7,700
16%
2008
8,513
11%
2009
7,765
-9%
The result of this decrease in funding is that the scale of the capital programme (National
Development Plan) has been reduced, with a stated focus now on projects that should add to
the economy’s productive capacity and employment. Key features of the capital programme
include continuing work on major inter-urban roads, improvements in public transport, such
as the LUAS extension, and investment in water services. In addition, €581 million will be
spent on the school building programme and €1.4 billion on capital housing projects.
Tax Revenue:
The total tax revenue was projected to increase in the 2008 budget by 3%, from €47,325
million to €48,776m. However, the 2008 outturn of €42,360 million was 13.1% below this
projection, which is a shortfall of €6,416 million. The Budget projection is that taxation is set
to fall to €41,210m in 2009, a decrease of 2.7% (see table on Detailed Tax Revenue)
Total Tax Revenue
Year
€m.
% Increase
2004
35,700
12.4%
2005
39,308
10.1%
2006
45,452
15.6%
2007
47,325
4.1%
2008
42,360
-10.5%
2009
41,210
-2.7%
The main sources of tax revenue are Income Tax, VAT, Excise, Corporation Tax, Stamp
Duty and Capital Gains Tax (CGT). Although the returns from each of these sources were
10
below those projected for 2008, the shortfall in tax revenues was not evenly distributed.
Taxes linked to construction-related activities, e.g. Stamp Duty and Capital Gains Tax
experienced the largest difference between projected and actual revenues, as outlined in the
table below. Outturn for 2008 for CGT was only 54% of the estimated revenue at the start of
the year. For Stamp Duty, this figure was 61%. In 2009, the projected tax revenues of
€41,210 million reflect the further contraction in the economy, including the low level of
activity in the construction sector.
Detailed Tax Revenue (€ million)
Source
Value-Added Tax (VAT)
Income Tax
Corporation Tax
Excise
Capital Gains Tax
Stamp Duties
Capital Acquisitions Tax
Customs
Total
2008 estimate
15,225
14,170
6,665
5,885
3,180
2,950
400
300
48,776
2008 outturn
13,525
13,200
6,000
5,539
1,710
1,810
320
255
42,360
2008 Outturn as a %
of estimate
89%
93%
90%
94%
54%
61%
80%
85%
87%
2009 estimate
13,250
13,400
5,680
5,434
1,350
1,530
310
255
41,210
The National Economy / Ireland's Stability Programme:
A feature of the budget is the publication of Ireland's Stability Programme, i.e. economic
and budgetary projections for the next 3 years, in the framework of Ireland's membership of
the euro. As the following table shows, the economy is expected to contract in 2009 by
approximately 1%, but growth is assumed to resume in 2010 (although some commentators
consider this return to growth by 2010 to be very optimistic). The fall in fixed investment
reflects the decline in construction activity, particularly in the housing sector. The
assumptions on personal consumption figures also seem optimistic and are very dependent on
factors in the rest of the economy, such as employment. The reduction in the inflation rate
reflects a number of factors including the slowdown in the economy, the recent reduction in
oil prices and the expectation that the increases in food commodity prices of the last year
have now come to an end.
Economic Outlook (Percentage Volume Changes)
Economic Outlook (% volume changes)
2008
2009
2010
-1.3
-0.8
2.7
Gross Domestic Product (GDP):
2011
3.7
Gross National Product (GNP):
-1.6
-1
2.4
3.5
Expenditure on GNP:
Personal consumption:
Public consumption:
Fixed investment:
Exports:
Imports:
Inflation
0.7
3.9
-19.2
2.5
-0.8
3.4%
0.5
0.7
-17.2
2.5
-1
2.2%
1.7
0.6
3.5
3.4
2.2
1.8%
2.4
0.4
5.5
3.7
2.3
1.6%
Employment growth (%)
0
-0.9
0.5
1.2
Unemployment rate (%)
Labour productivity
5.8
-1.3
7.3
0.2
7
2.1
6.5
2.4
11
Public Finances (% of GDP)
Finally, the government balance is expected to be in deficit for the next number of years. The
National Debt: GDP ratio will also increase significantly, from 36% in 2008 to 43.4% in
2009, and will continue to increase up to 2011.
Public Finances ( % of GDP)
2008
2009
2010
2011
Government revenue
34.6
35.3
35.9
36.2
Government expenditure
40.1
41.8
40.7
39.1
Government balance
-5.5
-6.5
-4.7
-2.9
Debt : GDP ratio (%)
36
43.4
47.5
47.8
12
OVERVIEW OF 2009 BUDGET
Public Finances: Economic growth in Ireland stood at 4.1% in 2007 (in GNP terms) but the
economy fell into recession in 2008, and is projected by government to continue in recession
in 2009. The most dramatic consequence of the recession is for tax revenue, which was
down by 10.5% in 2008, and is expected to be down again in 2009, despite the tax increases
announced in the budget.
The lower rate of tax revenues will impact on the amount of public expenditure that can be
undertaken. The 2009 budget involves a 0.6% increase in public expenditure, comprising a
2.6% increase in current expenditure and a decline of almost 9% in capital expenditure.
The General Government balance for 2009 is a deficit of 6.5% of GDP. Although this figure
exceeds the 3% limit of the Stability and Growth Pact, it is unavoidable in order to meet the
public expenditure requirements, given the significant decreases in tax revenues available to
the government.
Inflation: The policy of the European Central Bank (ECB) is to achieve an inflation rate of
2% or less in the euro zone overall. Ireland’s inflation rate in 2008 is 3.4% and for 2009, the
projected inflation rate is 2.2%.
Economic Outlook: The Government is projecting a return to economic growth in 2010
(GNP growth of 2.4%). This may be an optimistic assumption if the global economy is in
recession. Clearly the government has limited means with which to stimulate the economy,
and Irish consumer expenditure is likely to be weak.
Benefits or Costs to Farmers: Agriculture and farm families are affected by the Government
expenditure decisions and taxation decisions for 2009 in the following ways:

Inadequate DAFF funding for the Farm Waste management scheme for 2009;

In addition, probably inadequate funding for the Farm Improvement Programme and
no indication of progress on the currently excluded 5,000 applicants from October
2007;

Cutback in payments under the Disadvantaged Areas Scheme;

Suspension of the Early Retirement and Installation Schemes;

No increase in funding for the Suckler Cow Welfare Scheme above the €250 million
already decided, despite the high number of applicants. This will result in reduced
payment rates for 2009-2012, possibly to €40 per cow;

A 1% income levy, which will bear more heavily on farmers than employees, as it
will apply on gross income before any deductions for capital allowances;

Finally, a number of existing tax reliefs for farming have been renewed. These are
Stamp Duty relief for young trained farmers, Farm Consolidation Stamp Duty relief,
Stock relief and Farm Pollution Control capital allowances.
13
Rowena Dwyer
Chief Economist
Con Lucey
Farm Business Committee
15th October 2008
14
Gerry Gunning
Rural Development Committee