Budget 2021: support for agriculture needed in face of COVID-19 and Brexit

In framing Budget 2021, Minister for Finance Paschal Donohoe will not only have to contend with the fiscal and economic fallout of the COVID-19 pandemic, but he will also have to be mindful of the increasingly likely prospect of a no-deal Brexit, the urgent need to address climate change, ongoing reform of international tax rules, and the possibility of further global trade turbulence depending on the outcome of the US presidential election in November.

Brexit

Brexit will of course be among the minister’s top priorities. At the time of writing, there is concern that there will be no agreement on a trade deal between the EU and the UK, which would lead to the imposition of World Trade Organisation tariffs. We have already seen the hospitality, travel and non-food retail sectors bear the brunt of the COVID-19 impact. But agri-business will be one of the sectors hardest hit by a no-deal Brexit. The budget must contain measures to support the agri sector if a no-deal Brexit actually happens.

The budget will likely contain targeted measures to support the most affected sectors

In fairness, the minister has indicated that the budget will be based on the assumption of a disorderly Brexit – but has not provided any indication of what that will mean for different sectors. Given the importance to the Irish economy of exports to the UK by the agri sector, it is vital that the budget includes direct supports to protect agribusiness from the fallout of Brexit.

The budget will likely contain targeted measures to support the most affected sectors. We expect the Government will continue to extend schemes like the Brexit loan scheme and future growth loan scheme, all of which would be welcome. But there is also a need to include funds to provide direct support to farmers affected by reduced prices for their products.

The EU has a €5bn Brexit support scheme for countries and sectors most affected by Brexit. The Government must ensure Ireland benefits to the maximum extent possible from this scheme.

Many companies are digitising their businesses and people will require new skills to work in that new environment

Regardless of any future trade deal, the reality of Brexit is that customs obligations will now arise for any agri-businesses exporting to the UK and they will now face a myriad of new requirements and paperwork. Many companies are digitising their businesses and people will require new skills to work in that new environment. The Government should start investing in those skills by providing supports to allow people to retrain and to assist employers to provide training for their employees. Funding should also be made available for investments in infrastructure and technology in our ports to ensure trade flows freely following Brexit.

Green agenda

Tax policy will be key to driving the green agenda. Promoting green activity through tax measures and incentives is key. An increase in carbon tax will only add to the rising costs faced by farmers. The Government needs to look at providing incentives to the farming and agribusiness communities.

The ACA allows a sole trader, farmer or company that pays corporation tax to deduct the full cost of energy-efficient equipment from their profits in the year of purchase

Among various incentives introduced in recent years to help Ireland meet its climate change targets, the Accelerated Capital Allowances (ACA) scheme (administered by SEAI) is particularly relevant for farmers and agribusinesses. The ACA allows a sole trader, farmer or company that pays corporation tax to deduct the full cost of energy-efficient equipment from their profits in the year of purchase.

The Government should extend this scheme, which is due to expire on 31 December 2020, and expand the list of qualifying energy efficient equipment to include emissions-efficient equipment.

Succession

Notwithstanding COVID-19 and Brexit, life moves on and passing on the business to the next generation still needs to happen. In fact, it is arguable that it has never been more important to encourage the transfer to the next generation of young trained farmers to drive the sector in the future. But there are aspects of the Irish tax system that hamper the orderly transition of ownership to the next generation by leaving costly tax bills that can stifle the transfer of family businesses. The existing 90% agricultural relief and the 90% business relief from CAT are critical to support the transfer of farm and agribusinesses but further consideration should be given to an increase in the parent-child exemption threshold (currently €335,000), abolishing the restrictions on retirement relief from capital gains tax for those over 66 years of age and reducing the current 33% rate for capital gains tax and gift/inheritance tax.

Agricultural land should be removed from the definition of commercial property and revised

While the stamp duty rate is reduced for transfers between blood relatives and for acquisitions by some Young Trained Farmers, the application of the 7.5% commercial property rate to farmland is a huge disincentive where a farmer wishes to acquire additional land to expand his/her farming enterprise. Agricultural land should be removed from the definition of commercial property and revised in line with the residential stamp duty charge of 1%, up to €1m, and 2% thereafter.

Income tax

It has been widely reported that there will be no substantive changes from an income tax perspective, with no increases in PAYE credits or rate bands, PRSI and USC.

The programme for government has committed to bring the earned income tax credit of €1,500 for self-employed individuals including farmers in line with the credit of €1,650 for PAYE employees. We expect that this increase will be implemented in full in the budget.

Income of self-employed individuals over €100,000 is still subject to an additional 3% USC surcharge compared to a PAYE earner. This discrimination of the application of the USC between PAYE and self-employed earners should be removed. This is an unfair additional tax burden aimed solely at self-employed individuals.

Conclusion

There will be no major changes in taxation as Minister Donohoe has already indicated this would be counter-productive. However, the Government must make the most of EU funding available to it in order to support all businesses in these unprecedented times.