The initial estimate of the combined budget deficit for 2021 and 2022 of €34.5bn has been reduced to €21.5bn and this feeds into overall Government borrowings at just below €240bn. The cost of funding this debt has remained relatively low at €3.8bn per annum.
We will see a phasing out and reduction in the Covid 19 Wage Subsidy and PUP payments that have been in place since early 2020. Unemployment is set to decrease by over 400,000 in 2021 and 2022 and this has a double positive impact through increased tax receipts and a reduction in PUP and Wage Subsidy supports and people coming off the live register.
The macroeconomic outlook looks positive with all indications that cash saved during the pandemic will lead to a significant increase in consumption and growth in the domestic economy is projected at 6.5% for 2022. This increase in spending should result in higher VAT and Income tax receipts in 2022 of approximately €3.5bn and allied to the very strong corporation tax receipts the Government had greater flexibility on spending in important areas, such as Housing, Health and the Environment, without significantly increased borrowings.
Last year Mazars had called for the Government to broaden and simplify the EIIS investment support scheme for businesses and the Finance Bill will see some changes to extend its duration by 3 years and make it more attractive for investors. €30m is also being committed to the Innovation Equity Fund which was set up to invest in high innovation domestic seed stage SME’s.
A new tax credit, similar to the R & D tax credit scheme, is being introduced for the digital gaming sector in order to stimulate employment and gain a greater share of an important and developing sector. The new credit will be 32% of the qualifying spend with a cap of €25m per project.
In the past couple of weeks, Ireland held out to get a better deal and clarity on the proposed minimum effective tax rate at 15%. Certainty on the rate of corporation tax is vital for the flow of FDI and the new rate should provide that, albeit Ireland will likely end up with lower corporation tax receipts going forward as other countries are allocated certain taxing rights. For most domestic companies the existing corporation tax rate at 12.5% will continue, where turnover is less than €750m.
Budget 2022 will be seen as a major step in our post pandemic recovery plan and also illustrates the broad political and public support for significant investment in Housing, Health, the Environment and other necessary infrastructure requirements. In addition Budget 2022 is a step towards balancing the books and investing in a modern and sustainable economy where it is required to leave the country in a much better position for our future generations. The Irish economy is well placed to grow and develop both domestically and internationally and the signs ahead are very positive.
If you missed our Budget 2022 briefing watch it back here.
The webinar provides a comprehensive overview of Budget 2022 from Frank Greene, Head of Tax, Mazars in Ireland, Cormac Kelleher, International Tax Partner, Mazars in Ireland and our special guest, Martina Lawless, Economist and Research Professor at the Economic and Social Research Institute (ESRI).