On 16-17 July, the Government convened a meeting of key stakeholders, known as the National Economic Dialogue to discuss options and proposals for Budget 2016. The Government has signalled that Budget 2016 will have available fiscal space of between €1.2 billion to €1.5 billion. This will be divided on a 50:50 basis between tax cuts and spending increases.

Martin Keane on behalf of ICOS attended the two day meeting held in Dublin Castle. The National Economic Dialogue was chaired by Alan Barrett, the Director of the ESRI, with the Taoiseach and key Ministers in attendance. Minister Coveney chaired a specific breakout session on regional and rural development.

At the National Economic Dialogue, ICOS highlighted the role played by the agri-food sector in sustaining and supporting employment across rural Ireland. Furthermore, ICOS pointed out that the agri food sector uniquely supports the rural economy in a manner different to other manufacturing and Foreign Direct Investment. This is because the agri food sector uses a range of inputs sourced from local service providers, which creates a multiplier effect whereby every town and parish in Ireland benefits.

Last year’s budget included several positive changes for the farming sector. These changes were introduced following a comprehensive review of agri taxation measures. Of note, budget 2015 introduced a range of measures to encourage the long term leasing of land including a new income tax threshold of €40,000 for lease periods of 15 years or more. In addition, the income averaging system was increased from 3 years to 5 years to assist with income volatility.

Building on these welcome changes in agri taxation policy, ICOS proposed three specific recommendations at the National Economic Dialogue for the Government to include in Budget 2016.

1. The establishment of an income deferral scheme: ICOS recommends the establishment of an income deferral scheme based on the Australian Farm Management Deposits Scheme. This is a system whereby farmers can move their before tax income from years they need it least, to years when it is most needed. For example, during periods of high prices, farmers would be permitted to divert a portion of their gross milk receipts into a recognised fund. They can then draw down this income during periods of low prices. On withdrawal, the deferred income would be liable for income tax. The income deferral scheme as proposed by ICOS would complement the income averaging system currently in place by providing farmers with an additional risk management tool to deal with uneven income due to a wide range of unique factors from weather to global markets.
2. Recognition for farmers who invest in their co-op: With the abolition of milk quotas, the vast majority of Irish dairy farmers have signed a milk supply agreement with their co-op. In addition, co-ops have put in place share buy in arrangements with a small number of farmers who don’t have a shareholding in their co-op. ICOS firmly believes that the co-op is an extension of a farmers business. Investment by a farmer in their co-op is in effect an investment in their own business. Previously, Revenue recognised milk quota purchase as an allowable expense. ICOS recommends that investments by farmers in their co-op should treated in a similar way.
3. Tax relief to support best practice in environmental sustainability: ICOS recommends the introduction of tax relief similar to existing research and development (R&D) tax credit guidelines, with the specific aim of supporting best practice in environmental sustainability. Under the R&D guidelines, a 25% tax credit is available for qualifying expenditure for companies engaged in in-house R&D. This tax credit can be set against a company’s corporation tax liability. The principle of incentivising a “key employee” also contained in the R&D guidelines should also be translated to the proposed measure dealing with environmental sustainability. The purpose of such a measure is to encourage co-ops and other appropriate businesses to invest in the knowledge needed to drive sustainability at farm level. This proposal would fully support the wider objectives of Government to promote Irish food production as the most sustainable in the world.

As a follow up to the National Economic Dialogue, ICOS are currently finalising a written submission to the Department of Finance on Budget 2016. This will be submitted in the coming weeks.

By Eamonn Farrell