| While there remains uncertainty in relation to Ireland’s economic stability, and what assistance may be required from the EU, it still appears likely that there will be an adjustment of €6 billion in Budget 2011. Further details on the expenditure and taxation breakdown will be outlined in the four-year budgetary plan later in the month. Figures for individual Government departments have not yet been announced, but adjustments will be required across the board. It is critical that Government remember the importance of encouraging growth and the role for agriculture in our recovery when deciding on adjustments. Over the last 12 months, agriculture has returned to strong growth, even with the continuing pressures of a depressed domestic consumer market, and the ongoing weakness of sterling. Returns to date indicate that the value of agricultural output will grow by over €400m in 2010. Agri-food exports have grown by more than 10%, and can grow further next year. This will be critical for the achievement of the Government target of overall export growth of 5% in 2011. Farm Schemes In its pre-budget campaign, IFA has argued strongly for the retention of funding for farm schemes, with a particular priority the reopening of the AEOS. While significant savings will be required in all Government departments, there are good reasons for the retention of farm schemes. From a practical point of view, large savings are already in the pipeline for the Agriculture budget in 2011 without touching farm schemes. These include savings from the wind-down of Farm Waste Management, REPS, Pork Dioxin and from reduced staffing levels. Of greater importance however is the economic stimulus that is provided by ongoing farm schemes, particularly the AEOS, Disadvantaged Areas, Suckler Cow and other investment schemes. Farmers source over 70% of their inputs domestically with the result that any funding received is redistributed throughout the rural community through expenditure on locally provided inputs, labour, goods and service. In making its decision on spending reductions, Government must differentiate between savings that are difficult, but necessary, and cuts that will negatively impact on growth. Farm Taxation Like all other taxpayers, farmers will be affected by general changes to the taxation system. IFA is concerned however that important farm taxation reliefs are maintained. These reliefs are in place to encourage restructuring, land mobility and an increase in scale and capital. While the Commission on Taxation (CoT) report recommended the continuation of certain farm taxation schemes, including long-term land leasing, forestry tax incentives and stamp duty relief, it also contained proposals for the reduction or abolition of key schemes. IFA has argued strongly against the implementation of these recommendations, as they would have the net effect of discouraging family farm transfers, reduce the numbers of new entrants and discourage farmers from investing in their businesses. The schemes, their proposed changes and the implications of these changes are set out below: Capital Gains Tax Retirement Relief allows qualifying farmers to dispose of their farm to family members without liability for Capital Gains Tax. This encourages lifetime transfers of farms to the next generation. The CoT report recommends a ceiling of €3m on the value to an asset transferred, with CGT applying on the part of the gain attributable to the amount over €3m. This would result in farmers choosing to defer transfers of commercial family farms until death, thus slowing down the restructuring of the agriculture sector. Agricultural Relief - Agricultural relief at a rate of 90% allows for the market value of a farm transferred to be significantly reduced for the purpose of calculating Inheritance/Gift Tax. Those in receipt of the farm are therefore not hit with a sizeable tax bill at a critical time in the commencement or expansion of their farming business. The CoT proposed a reduction in Agricultural Relief from 90% to 75%. The impact of this recommendation would be to reduce the exempt threshold from €4.15m to €1.7m. This could result in two outcomes. Farms could be divided to below viable levels to ensure that transferees are not hit with a tax bill and/ or family farms would be sold, as transferees would be unable to afford the tax bill. Either outcome would undermine the viable family farm structure in Ireland. Stock Relief - The existing general 25% stock relief and the special 100% relief for young trained farmers provide an important income tax incentive for farmers who are expanding. The CoT recommends that Stock Relief should be discontinued. The implementation of this recommendation would directly contradict the targets for output growth set out in the Food Harvest 2020, which will require farmers to significantly expand their stock. Capital Allowances - Under the income tax system, farmers can deduct capital allowances before the calculation of taxable income. Investments can be written off against taxable income over a 7/8-year period. The CoT recommends that taxable income would now be calculated using depreciation. For buildings this would mean a depreciation rate of 4%/year only, i.e. the write-off period would be over 25 years. This change would act as a huge disincentive to investment on farms, as it would result in a high upfront cost with a very long write-off period. Conclusion The size of the savings requirement in Budget 2011 is of such a scale that every individual will be affected. Farm incomes and viability cannot be impacted on the double through reductions in funding for vital farm schemes or through the reduction of key farm taxation reliefs. It is critical that Government does not undermine the growth potential of agriculture over the next decade through negative expenditure or taxation decisions. |
Friday, 19 November 2010 14:08