Banking on Budget 2022

Second guessing the decisions to be made by Finance Minister Paschal Donohoe can be a hazardous occupation at the best of times. A prudent, measured occupier of the role of guardian of the Irish economy, Donohoe has an impressive track record.

As speculation on the numbers for 2022 builds the Finance Minister has indicated that the government is expecting to see a “very strong rebound” in the Irish economy. The €4.7 billion 2022 Budget will be presented next Tuesday, on October 12, and the presiding influence on the Irish economy is COVID-19. There have been a number of strong leads on aspects of the budget. Back in the olden days there were referred to as “leaks”, however the word has taken on connotations that the government would like to keep at arm’s distance.

A bonus Bank Holiday or a frontline worker cash payment have been speculated upon. However, Taoiseach Micheal Martin indicated there will be no announcement on a Covid payment on Budget Day.

Further conjecture on a voucher scheme akin to last year’s ‘Stay and Spend’ suggests such an initiative may be announced.

Increasing the minimum wage was flagged in a Dáil address by Tánaiste Leo Varadkar. A recent Central Statistics Office reported shows inflation has reached its highest level in 10 years. Any rise in minimum wage may force an increase in social welfare rates. Social Protection Minister, Heather Humphreys, says Budget 2022 will focus on the vulnerable to improve the lot of social welfare recipients. Escalating fuel prices may see additional payments under the fuel allowance scheme.

There have been number of kites flown around pensions, income tax and tax breaks. A modest pensions increase of €5 per week may be on the cards, and Varadkar has suggested “tax indexation” will mean that, if people get a pay increase, they will not lose it in tax.

Ireland is the only EU country where GDP grew in 2020 despite the global pandemic. The main reason for this is the activity of the multi-national companies, who are generating large profits.

Savings levels in Ireland, before COVID-19 were roughly similar to the EU average. However, during the pandemic Irish savings reached unprecedented levels.

The Celt reached out to some of our friends - experts in the financial field - for their take on Budget 2022. Patrick Keavney of KBG Accountants identified key areas that need to be addressed: “Budget 2022 needs to put in motion a strategy that will ensure a bright future for our country. Certain parts of the economy and many people continue to need support. We also need to continue to maintain our international competitiveness. It makes sense to invest in key areas like housing, healthcare and climate change, however it is vital that money is well spent.”

The KBG managing partner noted that some issues are perennial: “The Help to Buy Scheme, worth up to €30,000, is set to be extended for another year, however it still only relates to new builds. It’s difficult for people in this region to utilise the scheme unless they are building their own home, as there are little to no new developments underway in this region that are not already earmarked for social housing. We have been saying for the last number of years that VAT on purchase of housing should be reduced in order to reduce the cost,” Patrick says.

Cormac Smith, KBG accountant, says promoting business investment will be prioritised: “The government is considering changes to the tax relief for investors in small companies in Budget 2022, which may provide a better uptake in Employment and Investment Incentive Schemes (EIIS), which is positive for SMEs in this region if implemented.”

On the domestic front childcare subsidy and means tested thresholds are forecast to be increased, which will assist low and middle income families.

“We have heard that Budget 2022 is expected to include tax measures to promote remote working. Our firm has adapted to radical work practices, making progressive changes that would not have been considered pre-pandemic. We have team members working remotely and recently we have announced that we are introducing a four-day week from January 2022, promoting a better work-life balance,” Patrick Keavney concluded.

This Budget is perhaps one of the most important in modern times - helping to put the country back on a firm footing post Covid. Culture has changed and the government must fund initiatives and schemes that will revive rural Ireland, facilitate hybrid working and promote a better work-life balance.