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IFA Report on the 2007 Budget
Introduction
Part I
Government Expenditure in relation to
Agriculture/ Estimates for 2007
Part II
Taxation
Part III
Social Policy
Part IV
The Public Finances and the National Economy
Overview of 2007 Budget
11 December, 2006
INTRODUCTION
The annual budgetary process involves two stages:
A.
Agreement by Government on the public spending estimates for the coming year
and their publication in the annual Book of Estimates; the estimates for 2007 were published
on 16th November. Most policy changes in relation to public expenditure are built into the
Book of Estimates, with the exception of Social Welfare rate increases which are announced
on budget day. Some specific Government initiatives requiring increased public spending
may also be announced in the budget. The post-budget estimates are normally published
within 10 – 12 weeks of the budget.
Expenditure relating to Agriculture for 2007 is summarized in Part I following.
B.
Decisions on budget day on:
(i)
The financing of public spending through taxation
Changes in taxation rates and taxation policies particularly relevant to farmers
are set out in Part II.
(ii)
Additional spending, particularly on Social Welfare rates
Increases in social welfare rates and PRSI pensions, together with other social
policy changes are in Part III.
(iii)
The level of the budget balance (budget surplus or deficit)
Part IV of this report focuses on the public finances and the national economy
and seeks to put the 2006 budget in the context of recent years. It also
includes the targets to be achieved over the next few years in Ireland’s
Stability Programme, 2007-09.
An assessment and overview of the budget is given at the end of the report.
1
PART 1: GOVERNMENT EXPENDITURE IN RELATION TO
AGRICULTURE – ESTIMATES FOR 2007
Department of Agriculture and Food
The 2007 Book of Estimates was published on 16th November. The following is a summary
of the gross expenditure by the Department of Agriculture and Food (DAF), the receipts to
the Department (mainly from the EU), and the net expenditure for 2006 and 2007. (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”).
Dept of Agr. &
Food (€m)
2006
estimate
Gross expenditure
Receipts
Net expenditure
1,498.6
450.2
1,048.4
2006
forecast
outturn
1,431.2
498.6
932.6
2007
estimate
1,638.1
412.2
1,225.9
% change
from 06
outturn
+14.4%
-17.3%
+31.5%
Relative to the 2006 forecast outturn, gross expenditure by the DAF for 2007 is up by 14.4%.
Also, the Minister signalled her intention to carry forward capital savings of €20m from 2006,
giving a possible increase of up to 16% in 2007. Net expenditure by the DAF, i.e. the cost to the
National Exchequer, is up by 31.5%, reflecting also some reduction in EU transfers.
MAIN ITEMS OF EXPENDITURE BY DAF (€M)
Gross Expenditure
2006
2006
2007
estimate outturn* estimate
Pay and administration
286.4
290.4
Research and training
34.9
31.5
34.1
Food safety, animal health and welfare
149.5
144.5
172.5
-TB & Brucellosis
(53)
(47)
(53)
- BSE
(21)
(20)
(18)
- Suckler herd welfare/quality
(18)
Market supports
25.9
30.9
Disadvantaged Areas
238.4
256**
257.0
REPS
322.9
291+
328.0
Land mobility
79.2
60.5
79.1
- Early retirement
(72)
(54)
(72)
- Installation
(7.2)
(6.5)
(7.1)
Development of Agriculture & Food
76.3
49
146.8
- Farm Waste Management
(43)
(21.5)
(81)
- Dairy & Meat processing
(9)
(9)
(42)
Forestry
118.0
114.0
114.4
Teagasc
122.0
128.1
Bord Bia
22.4
26.5
Food Aid
6.2
8.5
Other
16.4
21.9
Total Gross Expenditure
1,498.6
1,431.2
1,638.1
( *where significantly different from estimate) (** includes modulated funds)
2
% change
from 2006
3%
8%
19%
13%
-10%
20%
8%
13%
31%
33%
16%
200%
5%
18%
37%
33%
14.4%
Main Changes in Expenditure or Policy by DAF
Food Safety, Animal Health and Welfare, and Plant Health: The expenditure outturn for
2006 for TB is lower than the estimate. For 2007, €18m is allocated for the new beef
welfare/quality scheme; the total allocation for 2007-13 is €250m and as a demand-led
scheme IFA expects that additional funding will be provided in 2007 if required.
REPS: The outturn in 2006 will be at least €291m but could be higher. REPS is a demandled scheme and the actual requirement in 2007 will be influenced by the date of introduction
of the new REPS4. A 17% increase will apply to REPS4 payments.
Disadvantaged Areas Scheme: A once-off additional payment from the modulated funds of
€17m applied in 2006. From 2007 onwards the modulated funds are part of the €2.1bn EU
funding for rural development schemes for 2007-13.
Land Mobility: Expenditure under the Early Retirement Scheme in 2006 is significantly
below the allocation; there is a 33% increase for 2007 over the 2006 outturn.
Development of Agriculture & Food: This includes the on-farm investment schemes. The
expenditure of the Farm Waste Management scheme in 2006 was only €21.5m and €81m is
allocated for the scheme in 2007. There is €24m for other on-farm investment. €42m is
allocated in 2007 from the recently announced €150m capital investment schemes for dairy,
beef and sheepmeat processing.
Forestry: The allocation for 2007 is similar to the 2006 outturn. This does not include
funding for bio-energy crops; the National Bio-energy Action Plan is to be announced
shortly.
Animal Disease Levies: The halving of levies, worth €5m/year to farmers, is build into the
estimates.
Underspent Capital Carried Forward: If additional funding is required for forestry or other
capital expenditure such as on-farm investment it would be obtained from within the €20.2m
of capital expenditure carried forward by the DAF into 2007.
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 (€m).
Rural Development (incl. LEADER)
CLAR
Rural Social Scheme
2006 est.
26.6
22.9
43.3
2007 est.
32.5
20.2
43.3
Social and Family Affairs: The allocation for Farm Assist was €73.2m in 2006 and €69.5m
in 2007 estimates; this will be increased further in line with general Social Welfare increases
on budget day. The reduction is mainly due to participants transferring to the Rural Social
scheme.
Environment, Heritage and Local Government: About €6m was provided in 2006 from
the Heritage service to fund SACs, and figure of about €8m is provided in 2007.
3
Communications Marine & Natural Resources: €6m is allocated for Aquaculture
Development and €26.3m for Marine R&D for 2007.
Additional Measures Announced in the Budget
Bio-energy establishment scheme: Establishment grants for planting of willows and
Miscanthus for bio-energy (heat and electricity). The rates to be announced later. €2m
provided in 2007 and a further €2.5m and €3.5m being provided in 2008 and 2009.
National aid for energy crops: A national top-up of €80/ha to the existing EU energy crops
payment of €45/ha, for a limited period. The objective is to increase the area sown to energy
crops to 70,000 ha. Cost of €1m in 2007 and €2.5m in both 2008 and 2009.
Biomass harvesting machinery: 0.6m in both 2007 and 2008.
4
PART 11: TAXATION MEASURES
INCOME TAX
Personal Tax Package
The main elements, including associated costs1, of the personal tax package, which take
effect from 1 January 2007, are as follows:
Main Changes to Income Tax
Personal Credits increased by €130 single/€260 married to
€1,760 single/€3,520 married
Employee Tax Credit increased by €270 to €1,760
New Standard Rate Bands from 1 January 2007
Current
Proposed
Single
€32,000
€34,000
Married One Income
€41,000
€43,000
Married Two Incomes*
€64,000
€68,000
Lone Parent/Widowed
€36,000
€38,000
Parent
Higher Rate
42%
41%
Age Exemption Limits (single/married)
increased from €17,000/€34,000 to €19,000/€38,000
Health Levy threshold increased from €440 per week to
€480 per week.
Rate increased by 0.5% to 2.5% for earners whose income is
in excess of €1,925 per week (€100,100 per annum).
PRSI threshold increased from €300 per week to €339 per
week.
*With a maximum transferability between spouses of €41,000 in 2006 and €43,000 in 2007
FARM CONSOLIDATION
Leased Land Exemption
Tax exemptions apply for income derived from certain leases of farmland. From 1 January
2007, a new exemption of €20,000 per annum will be introduced for leases of 10 years or
more duration. This measure is subject to clearance with the European Commission under
State aid rules. The existing exemptions of €12,000 for 5 – 7 year leases and €15,000 for 7 –
10 year leases continue.
Extension of Stamp Duty Relief for Farm Consolidation
Stamp duty relief for exchanges of farmland between two farmers for the purposes of
consolidating each farmer’s holdings was introduced on 1 July 2005 for a period of two
5
years. The relief is being extended for a further two years to 30 June 2009. The relief will
also be extended to qualifying exchanges of land where only one farmer is consolidating
his/her holding. In such cases both farmers can qualify for relief, provided both farmers meet
all other conditions of the relief. These changes will be included in the 2007 Finance Bill.
However, commencement of these changes will be dependent on State Aid approval from the
European Commission.
(Note: IFA will be in further discussion with the Department of Finance in advance of the
Finance Bill to seek to have this measure as comprehensive as possible.)
Changes to the Stamp Duty Relief for Young Trained Farmers
Stamp duty relief is available for farmers acquiring land, who are aged under 35 and have
specific agricultural training. Amendments are now being made to the education criteria and
refunds procedure in this relief. Firstly, the FETAC Level 6 Advanced Certificate in
Agriculture will become the new minimum education requirement from 31 March 2008;
secondly, the qualifying third-level course titles are being updated; and finally, the refunds
procedure is being simplified. The changes being made to the refunds procedure are as
follows:




the time limit within which young trained farmers can complete their education
following the transfer is being extended from 3 to 4 years,
the current requirement for specific minimum education attainments at the date of
transfer is being abolished,
the requirement that the refund claim be made within 6 months of qualification is
also being abolished, and
the 5 year period during which a young trained farmer is required to retain and
farm the land will commence from the date of the claim for refund.
These changes will be included in the 2007 Finance Bill.
Stock Relief
The existing general 25 per cent stock relief for farmers and the special incentive stock relief
of 100 per cent for certain young trained farmers are being extended from 1 January 2007 for
a further two years subject to clearance with the European Commission under State aid rules.
Capital Allowances for Milk Quota
Capital allowances for milk quota are being amended to ensure this relief is available for
quota purchased under the new Milk Quota Trading System.
CAPITAL GAINS TAX
Increase in Threshold for CGT Retirement Relief
An exemption from CGT applies in the case of individuals aged 55 and over who dispose of
qualifying business or farming assets subject to certain conditions. Disposals made to a child
or favourite niece/nephew are relieved in full. All other disposals are relieved up to the
threshold of €500,000. This threshold is being increased from €500,000 to €750,000 from 1
January 2007.
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Retirement Relief – Disposals of Leased Land
An exemption from CGT applies in the case of individuals aged 55 and over who dispose of
qualifying business or farming assets. In order for a farming asset to qualify under the relief
it must have been owned and used for farming purposes for at least ten years prior to
disposal. The relief is now being extended, in certain circumstances, to disposals of land
where the land had been leased prior to disposal. In order for such disposals to qualify under
the relief, the following three conditions must be met: (a) the land in question must have been
leased for no longer than 5 years prior to disposal, (b) the land must have been owned and
used by the farmer for ten years prior to the initial letting of the land and (c) the land must be
disposed of to the person who was leasing the land. These changes will be included in the
2007 Finance Bill.
GIFT AND INHERITANCE TAX (CAT)
Agricultural Relief – Off-farm Principal Private Residences
CAT agricultural relief provides relief from CAT on 90% of the value of a gift or inheritance.
In order to qualify for the relief, 80% of a farmer’s total assets (after receipt of the
gift/inheritance) must consist of qualifying agricultural assets. Off-farm principal private
residences are not considered such assets for the purposes of this relief. This provision is
now being amended so that an individual may off-set borrowings on an off-farm principal
private residence against the property’s value, for the purpose of the 80% test. These changes
will be included in the 2007 Finance Bill.
VAT
Farmers’ VAT Flat-rate Addition
The farmers’ VAT flat-rate addition is being increased from 4.8% to 5.2% with effect from 1
January 2007. The flat-rate is designed to recoup non-VAT registered farmers for the VAT
they incur on their inputs.
This is worth €13.5 million in 2007, and €16 million in a full year.
Livestock VAT Rate
The rate of VAT charged by registered farmers and other businesses on the supply of
livestock, live greyhounds and the hire of horses remains unchanged at 4.8%. (The livestock
rate is a “super reduced rate” in EU terms; it is understood that certain complications arise if
this goes over 5%. IFA has requested the Department of Finance to fully clarify the situation;
we have been informed that livestock marts will not be adversely affected other than by
adding to their administration).
GENERAL INCOME TAX MEASURES
Mortgage Interest Relief
The current annual ceiling on the amount of interest that can be allowed on a mortgage is
being doubled for first-time buyers from €4,000/€8,000 single/married to €8,000/€16,000
single/married. The increased relief will be available to all first-time buyers who are in the
first seven years of their mortgage.
7
The ceiling for non-first-time buyers is also being increased, from €2,540/€5,080
single/married to €3,000/€6,000 single/married.
Childminding Relief
Budget 2006 introduced an exemption of up to €10,000 per annum on income from
childminding where an individual minds up to three children, who are not their own, in the
minder’s own home. If childminding income exceeds this the total amount is taxable, as
normal, under self-assessment. The €10,000 limit is being increased to €15,000.
Administrative Changes to help Taxpayers Claim Reliefs
A number of changes in administrative procedures are being introduced which will make it
easier for taxpayers to claim reliefs to which they are entitled. For 2007 all age-related tax
credits will, where possible, be credited automatically to the taxpayer where a verified date of
birth can be established through Revenue or Social Welfare records. A system will be
implemented to credit tax relief on trade union subscriptions automatically, based on trade
union membership lists. For 2008 it is planned to move, where possible, to automatic
repayments in respect of non-reimbursed hospital expenses, prescribed drugs pharmacy costs
and certain tuition fees to the extent that this is possible using information from appropriate
third parties. Tax relief due on medical insurance paid by employers that has been subject to
benefit-in-kind taxation will be automatically included in the employee tax credit. Work will
be progressed on applying similar procedures in due course to nursing home and other
medical expenses that qualify for tax relief.
PRSI
Employee PRSI annual ceiling
As from 1 January 2007, the PRSI contribution ceiling will increase from €46,600 to
€48,800.
Employee PRSI weekly threshold
As from 1 January 2007, the employee weekly threshold for liability to PRSI will increase
from €300 to €339.
DIRT:
Administration Change
DIRT can currently be refunded to an individual who is exempt from income tax if the person
or the person’s spouse is over 65 years of age or permanently incapacitated. The rules
relating to such individuals are now being changed so that in future they may notify their
financial institution of their status and receive the interest without deduction of DIRT. These
changes will be included in the 2007 Finance Bill.
Tax Clearance
Threshold Increase
The transaction threshold which triggers the requirement for a tax clearance certificate for the
award of a public sector contract or grant is being increased from the current €6,500 to
€10,000, with effect from 1 January 2007. The new threshold will be provided for in
Department of Finance circulars to be issued shortly. The circulars will also set out updated
procedures for the operation of the tax clearance system.
8
VEHICLE REGISTRATION TAX
Vehicle Registration Tax (VRT) - Public Consultation
It is planned to change the current VRT system to take greater account of environmental
issues, in particular Carbon Dioxide (CO2) emissions. A public consultation will be
undertaken in this regard with a view to making such a move with effect from a target date of
1 January 2008. Submissions are invited from interested parties by 1 March 2007. Further
information is provided in Annex D and on the Department of Finance’s website,
www.finance.gov.ie
Submissions are also being invited from interested parties, by 1 March 2007, in relation to the
rebalancing of annual motor tax to provide an incentive for the motoring public to drive
cleaner cars and to impose penalties in respect of cars with higher (CO2) emission levels.
Further information in this regard is provided in Annex E and on the Department of the
Environment, Heritage and Local Government’s website, www.environ.ie
DUTIES
Reduction in Excise Duty for Home Heating Oils (Kerosene & LPG)
The Excise Duty on Kerosene is being reduced from €16 per 1,000 litres to zero. The Excise
Duty on LPG is being reduced from €10 per 1,000 litres to zero. These reductions are
effective from 1 January, 2007. This follows through on the commitment in last year’s
Budget when these rates were halved.
Tobacco Excise
The Excise Duty on a packet of 20 cigarettes is being increased by 50 cents (including VAT)
with a pro-rata increase on the other tobacco products.
CORPORATION TAX
Relief for Investment in Renewable Energy Generation
The qualifying period for the scheme of tax relief for corporate investment in certain
renewable energy projects is being extended from 31 December 2006 to 31 December 2011.
The extension is subject to clearance by the European Commission from a State aid
perspective, and will come into operation by way of a Commencement Order to be made by
the Minister for Finance following such clearance.
ENTERPRISE AND INNOVATION
Business Expansion Scheme (BES) and Seed Capital Scheme (SCS)
The Business Expansion Scheme is being renewed from 1 January 2007 for a 7 year period to
31 December 2013. The BES company limit is being increased from its current level of €1
million to €2 million, subject to a maximum of €1.5 million to be raised in a 12 month period.
The investor limit is being increased from its current level of €31,750 to €150,000.
The Seed Capital Scheme is also being renewed from 1 January 2007 for a 7 year period to
31 December 2013. The new BES limit of €2 million will also apply to the SCS, subject to a
maximum of €1.5 million to be raised in a 12 month period. The investor limit is being
9
increased from its current level of €31,750 to €100,000.
VAT
VAT Registration Thresholds for SMEs
The VAT registration thresholds for small businesses are being increased from €27,500 to
€35,000 in the case of services, and from €55,000 to €70,000 in the case of goods. These
increases will take effect from 1 March 2007. This will reduce the administrative burden for
small businesses and the Revenue authorities. It could remove some 8,000 companies from
the VAT net. The increase to €35,000 in the case of services is also relevant to the sale of
single payment entitlements without land.
VAT Cash Accounting Threshold
The annual VAT cash accounting threshold for small firms is being increased from €635,000
to €1,000,000 with effect from 1 March 2007. This will simplify administration and reduce
working capital requirements.
Less Frequent VAT Returns for Small Businesses
The frequency of VAT payments, currently six per year, for smaller businesses is being
reduced with effect from July 2007. For businesses with a yearly liability of €3,000 or less,
the option of filing returns on a half-yearly basis will be available. For businesses with a
yearly liability between €3,001 and €14,400, the option of filing returns every four months
will be available. This will reduce compliance costs for the firms in question.
10
PART III: SOCIAL POLICY
Social Welfare Weekly Rates
Maximum weekly personal rates for all State social insurance (contributory) pensions will be
increased by €16 from the first week of January 2007. For the State Pension (NonContributory), the maximum personal weekly rate will increase by €18 from the first week in
January. Proportionate increases will apply for pensioners on reduced rates.
For the lowest Social Welfare rates such as jobseekers assistance (formerly unemployment
assistance) the increase is €20/week. This scheme determines the levels of Farm Assist
payments (see later).
Increase for Qualified Adults/Spouses Pension
The payments for qualified adults (IQA) are also increased. The largest increase is in the
case is the IQA for the contributory pension scheme in the case of spouses over 66 years, of
€23.70/week bringing the IQA to €173/week. The Minister for Social and Family Affairs
stated that this is the first step in the Government’s commitment to bringing 35,500 qualified
adults to the level of the State non-contributory pension (2007 rate : €200) over three years.
He also stated that he has decided that the upcoming Social Welfare Bill will make provision
to have the payment of the IQA made directly to the qualified adult.
(Note: it is expected that any further changes in relation to spouses’ pension entitlements will
be contained in the Pensions Green Paper due for publication around Easter 2007).
Main Social Insurance/Assistance Rates (€/week)
2006
2007
Increase
Personal rate (<80)
193.3
209.3
16.0
Incl. qualified adult <66
322.1
348.8
26.7
Incl. qualified adult >66
342.6
382.3
39.7
Personal rate (<80)
182.0
200.0
18.0
Incl. qualified adult <66
302.3
332.2
29.9
Personal rate
165.8
185.8
20.0
Incl. qualified adult
275.8
309.1
33.3
Both State pensions
19.30
22.00
2.7
Jobseekers allowance*
16.80
22.0
5.2
State Contributory Pension
State Non-Contributory Pension
Jobseekers Allowance*
Increase for Qualified Child
(* relevant to Farm Assist)
11
Farm Assist
Farm Assist thresholds and rates will increase from January 2007, arising from the increases
in personal social assistance rates €165.80 to €185.8, the adult dependent rate from €110.0 to
€124.3. (i.e. total of €309.1 for a person with a qualified adult dependent), and the qualified
child rate from €16.80 to €22.
Example of Farm Assist Payment:
Married farmer with 2 dependent children.
Assume income from means test of €220 per week.
From January, 2006:
From January, 2007:
Increase:
€162.2 /week.
€206.1/week.
€43.9/week.
The income threshold for this farmer to qualify for some level of Farm Assist increases from
€452/wk to €514/wk or €26,728/year.
Other improvements to Farm Assist:
-
People on Farm Assist will be permitted to make PRSI contributions.
Improved daily earnings disregard for recipients, up to €20/day for 3
days/week (€3,120/year).
Reform of the assessment of spouses’ earnings to reward work. (The sliding
scale, currently €100 - €220/week will be increased to €100-€280/week).
(Note: IFA will be preparing a detailed information paper on the changes to Farm Assist
thresholds and rates).
Children
Child Benefit will be increased by €10 per month for each of the first and second qualifying
children to €160 per month and also by €10 per month for each of the third and subsequent
qualifying children to €195 per month, effective from April 2007.
All social welfare child dependant allowance rates will be increased to a new maximum rate
of €22 per week from January 2007.
Non-Contributory (Means Tested) Pensioners
An increase in the means disregard by €10 per week to €30 per week for the State Pension
(Non-Contributory) and an increase in the employment earnings disregard by €100 per week
to €200 per week from January 2007.
Supporting Carers
The Respite Care Grant will be increased by €300 to €1,500 from June 2007.
The €290(single)/€580(couple) weekly income disregard for means assessment for the
Carer’s Allowance scheme will be increased to €320(single)/€640(couple) respectively, from
April 2007.
12
A new payment, equivalent to half the Carer’s Allowance, will be provided to certain people
with another social welfare entitlement from September 2007.
Care for Older People
An allocation of €205m in 2007 and €255m/year in following years. This will cover 2,000
additional home care packages, more funding for home help and 800 additional residential
care beds. Also, the Government decision on the re-organisation of the financing of longterm care including enhancement of the Nursing Home Subvention scheme is provided for,
and the details announced by the Minister for Health on 11th December.
People with Disabilities
An extension of entitlement to the full rate of Disability Allowance to all persons resident in
institutions from January 2007.
An increase in the amount of capital disregarded from the means test for Disability
Allowance from €20,000 to €50,000 from June 2007.
13
PART IV : THE PUBLIC FINANCES AND NATIONAL ECONOMY
Budget Balance (Budget surplus or deficit):
A requirement under the EU “Stability and Growth Pact” (SGP) is for member states in the
euro to normally have balanced budgets, and a limit on budget deficits not exceeding 3% of
GDP in years of economic down-turn. The measure of budget balance used is termed the
General Government Balance (which is a wide definition including the exchequer balance,
and also Local Authorities funding, the Social Insurance Fund and the National Pensions
Reserve Fund). One of the reforms of the SGP agreed in 2005 is that member states with low
debt or high potential growth (such as Ireland) may have a deficit of up to 1% of GDP as a
medium term objective.
Year
2002
2003
2004
2005
2006
2007
General Government
Balance (€m)
-577
+233
+2,117
+497
+3,980
+2,276
G.G.B.
as % of GDP
-0.4%
+0.2%
+1.4%
+0.3%
+2.3%
+1.2%
( - = Deficit; + = Surplus)
The projected General Government balance for 2006 in last year’s budget was a deficit of
€952m or 0.6% of GDP; the outturn was dramatically more favourable, i.e. a surplus of
€3,980m (2.3% of GDP), a difference of almost €5billion. The 2007 post-Budget situation is
a General Government surplus of €2,276m or 1.2% of GDP.
This is the balance before setting aside 1% of GNP (€1,615m in 2007) which is put into the
National Pensions Reserve fund to help pre-fund future pension liabilities of the state (both
PRSI pensions and public service pensions).
General Government Debt:
The key measure of government debt is the General Government Debt : GDP ratio.
Ireland’s Government debt has declined from 32% of GDP in 2002 to 25.1% of GDP in
2006. The levels the Government debt is about €44bn. Ireland has one of the lowest debt :
GDP ratio in the EU; the average Government debt for the EU25 is over 60% of GDP.
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. Economic
growth enables a reasonable balance to be achieved for all three elements of the budget.
Following the sharp slowdown in economic growth in 2001 and 2002 after the exceptional
“Celtic Tiger” period, growth recovered to more sustainable levels in the 2003-06 period. A
satisfactory growth rate of 5.3% is projected for 2007. This provides the basis for some
increase or improvement in public services.
14
Year
2002
2003
2004
2005
2006
2007
Growth in Real GNP (%)
2.7%
5.1%
4.0%
4.8%
5.7%
5.3%
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 2007 Budget outcome provides for an increase in current net expenditure on the public
services of 12.7%.
Net Current Expenditure on the Public Services
Year
€m.
% Increase Inflation
2002
23,345
+14.1%
+4.6%
2003
25,444
+9.0%
+3.5%
2004
27,247
+7.1%
+2.2%
2005
29,723
+9.1%
+2.5%
2006
32,992
+11.0%
+4.0%
2007
37,195
+12.7%
+4.1%
The net cost of the exchequer pay and pensions bill included in the above is €16,235m in
2006 (relating to 258,000 public servants and 73,000 public service pensioners) and
€17,430m in 2007, an increase of 7.4%. About 41% of pay goes to Health and 33% to
Education.
Capital Expenditure
The following gives the trend in voted capital expenditure on the public services for recent
years, and the provision for 2007 of €7,505m, an increase of 13.2%.
Growth in Net Capital Expenditure
Year
€m.
% Increase
2002
5,292
-3.9%
2003
5,398
+2.0%
2004
5,398
2005
5,835
+8.1%
2006
6,631
+13.6%
2007
7,505
+13.2%
Tax Revenue:
The total tax revenue was projected to increase in the 2006 budget by 6% and the 2006 outturn was an increase of 15.6% to €45.45bn, a difference of €3.8bn. The major contributors
to total tax revenue in 2006 were: Income tax (€12,300m), VAT (€13,455m.), Excise
(€5,602m.), Corporation Tax (€6,680m), Stamp duty (€3,700m), and CGT (€3,100m). The
greatest increases in 2006 relative to projections were for CGT (+52%), stamp duty (+37%)
15
and Corporation Tax (+11%). The Budget outturn is that taxation is set to increase to
€49,075m in 2007, an increase of 8%.
Year
2002
2003
2004
2005
2006
2007
Total Tax Revenue
€m.
% Increase
29,336
+5.0%
31,754
+8.2%
35,700
+12.4%
39,308
+10.1%
45,452
+15.6%
49,075
+8%
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 from the Stability Programme shows, the economy is
expected to grow at a reasonably good and steady rate for 2007 – 09. Unlike the Celtic Tiger
era however, when growth was mainly driven by exports, growth is now more dependent on
personal expenditure and investment (including construction).
Economic Outlook (Percentage Volume Changes)
2006 2007 2008
5.4
5.3
4.6
Gross Domestic Product (GDP):
5.7
5.3
4.6
Gross National Product (GNP):
Expenditure on GNP:
Personal consumption:
6.5
7.3
4.8
Public consumption:
3.6
3.7
3.5
Fixed investment:
6.8
5.4
3.8
Exports:
4.8
4.9
4.6
Imports:
5.9
6.2
4.3
Consumer prices (Inflation) %:
4.0
4.1
2.4
Employment growth (%)
4.4
3.6
2.1
Unemployment rate (%)
4.5
4.4
4.5
Labour productivity
0.8
1.7
2.5
2009
4.1
4.0
4.1
3.4
2.5
4.5
3.9
2.0
1.6
4.6
2.5
The Stability Programme also projects a good degree of stability in both Government
expenditure and Government receipts as % of GDP. The projected budget surplus means that
Ireland’s debt : GDP ratio would continue to decline as % of GDP.
Public Finances ( % of GDP)
2006
2007
Government revenue
36.8
36.6
Government expenditure
34.6
35.4
Government balance*
+2.3
+1.2
Debt : GDP ratio (%)
25.1
23.0
(*: The plus sign indicates a surplus)
16
2008
36.0
35.1
+0.9
22.4
2009
35.5
35.0
+0.6
21.9
OVERVIEW OF 2007 BUDGET
Public Finances: Economic growth in Ireland in 2004-06 satisfactory rate of 4%-5.5% and a
similar growth rate is projected to continue for the next few years. The 2007 estimates and
budget involve an increase in public expenditure of 12.8%, which is in excess of the
projected growth in the economy in money terms (about 9.6%), but made possible by the
exceptional buoyancy in tax revenue. The 2007 budget provides reasonable indexation of tax
credits and the standard band, and also reduces the top tax rate by 1%. However, the
significant increase in the PAYE tax credit further discriminates against the self-employed,
including farmers.
The General Government balance for 2007 is a surplus of 1.2 % of GDP, which by EU
standards would be seen as having a moderating effect on economic growth and inflation in
Ireland, but in reality is an extremely expansionary budget involving a 12.8% increase in
public expenditure. As with other recent budgets, there is a question mark over the
Government’s ability to convert higher spending into more or better public services. The
budget figures project a 8% increase in total taxation in 2007.
Inflation: Inflation in Ireland in 2006 at 4% is significantly above the average rate in the
euro zone of 2.4% this year and a projected 2.3% for 2007. The inflation projection for
Ireland for 2007 at 4.1% means that Ireland continues to be out of line with the EU norm.
The decision not to increase indirect taxes other than tobacco excise helps to moderate the
inflation rate. The policy of the European Central Bank (ECB) is to achieve an inflation rate
of 2% or less in the euro zone overall.
Economic Outlook: The Government is clearly factoring in a favourable growth rate in the
economy in 2007 and a continuation of this in 2008 and 09. The growth rate in the euro area
in 2006 has been relatively good by the standards of previous years, at 2.6%. UK and US
growth rates respectively in 2007 are forecast at 2.6% to 2.3%. With further rises in ECB
interest rates, some slow-down is expected in the European economy in 2007, to a growth
rate of about 2.1%. While there was some improvement in export growth in 2006, overall
economic growth and employment growth in Ireland are currently highly dependent on
consumer expenditure and the construction sector, both of which cannot continue growing
indefinitely. Both are supported by a major rise in personal debt; private sector credit in
Ireland has increased dramatically in the past 3 years, from €154bn (equivalent to 111% of
GDP) in Sept. 2003 to €303bn (equivalent to 173% of GDP) in Sept 2006.
Benefits or Costs to Farmers: Agriculture and farm families are affected by the Government
expenditure decisions (Book of Estimates) and budget decisions for 2007 in the following
ways:
Support Policies for Agriculture

The 14.4% gross increase and 31.5% net increase (i.e. exchequer funded) in public
expenditure by the DAF between 2006 and 2007 is very positive. This reflects the
improvements to the farm schemes and the halving of disease levies negotiated in the
new Partnership agreement.

A bio-energy package was announced including an establishment grant scheme for
planting willows and miscanthus, a national aid for energy crops of €80/ha as a top-up
to the EU aid of €45/ha (subject to EU approval), and a scheme to support biomass
harvesting machinery.
17
Farm Taxation

To facilitate farmers restructuring their holdings, the existing stamp duty exemption
for land swaps will be extended to cases where one farmer is consolidating.

The leased land income tax exemption scheme will be further improved. The annual
income exemption in the case of 5-7 year leases continues at €12,000, and for leases
of 7 –10 years at €15,000. A new exemption of €20,000/year will be introduced from
1 January for leases of 10 years or more duration.

The existing 25% scheme of stock relief for farmers and the special rate of stock relief
of 100% for young trained farmers will also be continued for a further two years until
December 31st, 2008 subject to compliance with relevant EU rules.

Reforms to the tax treatment of the Single Farm Payment entitlements were clarified
during the Partnership negotiations.

The flat-rate VAT refund is increased from 4.8% to 5.2% from 1 January, 2007; this
is worth €16m/year.

The threshold for CGT retirement relief is increased from €500,000 to €750,000.
Also the ten-year rule has been amended in the case of disposals of land previously
leased to same person.

CAT: In the case of off-farm private residences, the net value after borrowings will
be used in the qualifying assets test.

On the negative side, the 18% increase in the employee PAYE tax credit, bringing it
to €1,760, further discriminates against farmers and other self-employed.
Social Policy

Farm families benefit from the general budget provisions on social welfare rates
including pensions and Farm Assist. The largest single increase of €23.70/week is for
the IQA for dependent spouses who are over 66 in relation to contributory pensions,
bringing the rate to €173/week. An example of the Farm Assist increase is for a
married farmer with two dependent children with a farm income of €220/week; his
Farm Assist increases from €162.40/week to €206.10/week.

Farm Assist recipients will be permitted to make PRSI contributions. Also other
conditions including an earnings disregard and reform of assessment of spouses’
earnings to reward work will be introduced.

Increased funding for Elderly Care was announced, covering increased home care
packages and enhancement of the Nursing Home Subvention scheme.
Con Lucey, Chief Economist.
December, 2006
The assistance of Jim Devlin, former Executive Secretary, IFA Farm Business Committee
in preparing this report is acknowledged and appreciated.
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