The requirement for Minister for Finance Paschal Donohoe to satisfy a disparate group of independents along with Fianna Fáil saw him deliver what was ultimately a budget by consensus.
While the outcome was a package of measures that delivered and disappointed in equal proportions, it should be acknowledged that despite the political challenges, Minister Donohoe has managed to keep fiscal policy heading in the right direction – albeit it a slower place than we may have liked.
In the case of agriculture, delivery was in the form of a low-interest loan package plus an extra €25m for Areas of Natural Constraints (ANC). The low-interest loans had been well flagged, while the increased allocation for the ANC scheme was committed to in last year’s budget.
It had been widely anticipated that Budget 2018 would be used by the Government as a platform to launch the much-awaited Renewable Heat Incentive (RHI) scheme. Again, while the box was ticked, the €7m in funding fell well short of expectations and appears disproportionate to the €10m allocated to electric cars. As Thomas Hubert reports on page 19, the industry is targeting an annual RHI budget closer to €90m.
Nevertheless, the establishment of an RHI budget plus the move to allow farmland under solar qualify as farming activity for the purpose of capital tax reliefs when the farm is transferred should be welcomed. It shows the Government is finally moving in a direction that will support development of farm-scale renewable energy projects and provide farmers with alternative land uses.
Disappointment among farmers will stem from the fact that the Government failed to use the budget to help address some of the challenges created by Brexit. A low-income loan scheme has little impact on the suckler sector, where exposure to Brexit is at its highest. The BDGP scheme was an obvious vehicle to target increased support to suckler farmers, had the appetite existed.
In the context of a budget aimed at starting to reverse the cuts imposed during the financial crisis, we should not lose sight of the severe burden carried by the suckler sector, mainly through the demise of the Suckler Cow Welfare Scheme, which had an initial annual budget of €60m per annum and was 100% funded by the Exchequer.
Brexit also has the potential to see incomes on Irish farms become more exposed to price shocks. Developing export trade for beef and dairy products beyond the largely stable EU market will increase exposure to geopolitical issues and their ability to distort markets.
The budget provided the opportunity for Government to introduce income stabilisation provisions that would improve the resilience of farmers to trade through such periods. The need for such measures seemed to be accepted in the Department of Agriculture but appears to have failed to pass the rigours of the Department of Finance.
The Department of Finance will undoubtedly shoulder much of the blame for Government’s failure to deliver on its commitment in the Programme for Government that the PAYE and Earned Income Tax Credits would reach parity by 2018. In keeping with the overall theme of the budget, a token gesture was made by increasing the earned income tax credit by just €200.
The increase in stamp duty on a booming commercial property market from 2% to 6% is a logical step. Clearly the landscape has changed since 2011 when the rate was reduced from 9% to 2% in a bid to stimulate the market. Unfortunately, farmers seem to have been caught in the crossfire with the 4% increase also applying to agricultural land transacted outside of the various exemptions. Worryingly, the Department of Agriculture appears to have been caught off guard on this with Minister Creed having initially stated that the increase in stamp duty would not apply to agricultural land.
Farmers cannot be left to carry the costs of a policy decision where the consequences were clearly not fully understood by Cabinet. The Government now needs to find a mechanism to ensure the policy is implemented in the spirit it was intended.
Budget 2018: what it means for farmers