How does Budget 2019 effect the Irish Contracting Market?

There has been a lot of talk about Budget 2019 but how does it affect the Irish Contracting Market? 

I believe it is fair to say the Budget was more politically focused rather than tackling the big issues Ireland is facing such as the housing crisis, Brexit and making Ireland attractive for the much-needed mobile talent that employers desperately require.

Of course, we all appreciate Minister Donohoe had limited resources to tackle these monumental issues, but it would have been great to see some brave, creative solutions taken that really had the short to medium term best interest of the country at heart. Instead we received a mediocre attempt at trying to please as many voters as possible which ultimately really does them little good in the long run.   

How much!? I’m not going there!

With Ireland at full employment and employers screaming out for more talent to meet skills shortages and growth demands, it was disappointing to see the top marginal rate of income tax stay at 52% for employees. 

Although, in his Budget speech, the Minister highlighted 48.5% as being the top rate payable for those earning up to €70,000, the reality is that the marginal rate remains at 52% for the highest earners and therefore impacts on many of the exact type of top and specialist talent which Ireland is trying to attract. 

If the Government is serious about helping Ireland become more attractive to this much needed mobile talent group, they need to reduce this headline tax rate of 52% as it is deterring contractors taking up roles in Ireland.

With Brexit looming, I would have liked to see moves to make Ireland the destination of choice in the post-Brexit landscape. 

Sorry… No room at the Inn

The housing crisis is strangling the country. A common concern of the contractors looking to take up contracts in Ireland or Dublin is accommodation, or lack thereof more importantly. Rents are at an all-time high which is pricing Ireland out of attracting talent. I’m aware of several contractors staying in hostels as they cannot find or afford rents in Dublin.

The restoration of full tax relief for mortgages for landlords was welcomed and a positive move, however this is unlikely to have a material impact on the housing crisis.

I appreciate changes in taxation cannot solve this issue alone however I feel the Minister could have done more; for example, reducing the rate of Capital Gains Tax (CGT) on the sale of properties back to the 20% rate. This reduced rate would impact land hoarded developers and increase activity in the housing market.

In Budget 1998 the CGT rate halved from 40% to 20% with tax revenues doubling the following year and overall tax yield increasing by 1,200% over the subsequent years. This was a bold move however decreasing tax rates quite often equals higher tax yields.

Expense anomaly for contractors

Contractors quite often need to travel long distances to take up contracts. Unfortunately, unlike their foreign counterparts and indeed traditional Irish employees, they cannot claim these mileage and subsistence expenses as a tax deduction. 

The consequences of this is contractors are unwilling to travel to take up contracts or their hourly/daily rates must increase to compensate for not being entitled to claim travel expenses. As a result, the cost of investing in Ireland increases which reduces our competitiveness as a country on a global scale.

Countries like the UK, Germany, US and Canada operate successful expense models for contractors. A move to correct this anomaly and help Ireland attract and retain talent would have been an easy fix in Budget 2019. 

On the upside 

Budget 2019 was not all doom and gloom for contractors. There was a slight decrease in the USC rate and an increase in the Earned Income Tax Credit from €1,150 to €1,350. The impact of these changes means a typical contractor will be better off to the sum of c. €9 each week; this is nearly double the average employee.

The biggest change however announced for contractors was the extension of Job Seekers Benefit to the self-employed which I was thrilled to see. This was a huge move and should give a lot of individuals considering contracting the confidence to do so.

In summary, I cannot shake the feeling of Budget 2019 being a missed opportunity, especially regarding increasing Ireland’s attractiveness to FDI and the mobile talent workforce.  Sure, there will always be fiscal constraints however the big concerns pre-budget remains the same.

If you have any queries on Budget 2019 please feel free to get in touch with our team on [email protected] or +353 1 6877400.