Small USC tax cuts as Noonan prepares pro-business budget

USC to drop 0.5 per cent for lower paid workers; Further crackdown on corporate tax avoidance

Small tax cuts for low and middle income earners, a further move against corporate tax avoidance and Brexit-proof tax incentives for businesses are on the cards in next month’s budget, The Sunday Business Post has learned.

As preparations for Budget 2017 begin in earnest, the government is set to deliver a modest package of tax measures that will see low and middle income workers benefit by only around €5 a week or less. As two-thirds of the available €1 billion will go towards public spending measures, there is little room for tax relief for workers or businesses.

Proposals include reducing the two lowest rates of Universal Social Charge (USC) - currently 1 per cent and 3 per cent – by 0.5 per cent each.

Minister for Finance Michael Noonan has said repeatedly he will focus on reducing the impact of USC on low and middle income earners when he announces Budget 2017 on October 11.

Noonan met privately with Fianna Fáil finance spokesman Michael McGrath last week with the minority government needing the support of Fianna Fáil in order to pass the budget. Preparations will be ramped up in the coming days with the last tax receipts before the budget due next week.

Elsewhere,investment funds that have spent billions assembling Irish property portfolios are on high alert as government plans to crack down on potential tax avoidance structures are mapped out.

A government source confirmed this weekend that it is liaising with the Revenue over potential abuse of the structures, known as Qualifying Investment Funds (QIFs), Irish Collective Asset Management Vehicles (ICAVs) and Qualifying Investor Alternative Investment Funds (QIAIFs).

There is a particular concern that funds may be combining the different structures into single corporate entities to confer a favourable tax treatment, or that they may be being used to shield income arising from Irish assets from the Revenue Commissioners.

A move to tackle any perceived abuse is possible in either the budget or the finance bill, sources said.

A confidential client note sent out last week by real estate agency CBRE, which has been seen by the Post, warns that the move could “damage Ireland’s reputation internationally”, “[damage] investor and occupier appetite”, “potentially negatively impact the valuation of Irish real estate assets” and “[render] construction of planned schemes unviable”.

In the wake of Brexit, the government is also examining measures to help exporters hit by the fall in the value of sterling, including a possible state-backed credit insurance scheme. Capital gains tax on business based in Ireland may also be reduced in order to discourage companies from leaving the country in favour of a potentially more lucrative regime in Britain.