In direct economic terms, Budget 2018 will have limited short-term impact. The net new spending and tax changes amount to just 0.15 per cent of GDP. However, a number of significant and welcome policy changes will have a very positive impact on economic performance over the coming years.
Given the narrow budgetary constraints accepted by the Government, this was a sensible and well-balanced budget. Most significantly, the new policy measures were largely underpinned by sound economic rationale. As such, they will support job creation and investment decisions by business.
Government has clearly refined its approach to income tax. The increased emphasis on reducing the tax burden on middle income earners is very positive and is something Ibec has long called for.
From a job creation perspective, the increase in the entry point to the top rate of tax is good policy. It addresses where Ireland’s tax on talent is most out of line internationally and, if the approach continues over the coming years, it will ensure average income earners avoid punitive high marginal tax rates. Minister Donohoe’s medium-term plan for personal tax reform has gone down well with both indigenous and multinational employers looking to attract and retain the best talent.
Ireland’s very low level of infrastructure investment remains one of the biggest challenges facing the country. The significant increase in capital spending outlined for 2018 and subsequent years is a very positive step towards addressing this challenge. Next year’s budget will see significant additional resources becoming available, and much-needed investment can be ramped up further.
The new capital spending commitments, aligned with an ambitious 10-year capital plan and a sensible National Planning Framework, should deliver real improvements in our national infrastructure for both business and citizens.
While there are some useful measures to help support businesses most impacted by Brexit, the scale of resources allocated to Brexit is underwhelming. Budget 2018 has also hit business with a number of labour cost increases, which undermine the commitment that it would be Brexit-proofed. It is essential that the increase in the national training fund levy results in businesses having much more of a say in how the money is spent and ringfences resources for targeted in-work training programmes.
This was the last of the recession hangover budgets. While resources remain limited, we are heading firmly in the right direction. Subsequent budgets will present even greater opportunities.
Fergal O’Brien is director of policy and public affairs at Ibec.
