Published at the end of September, the draft Finance Bill for 2014 continues to aim to reduce the public deficit, with a focus on controlling public expenditure. Whilst the planned tax reforms are less extensive than those undertaken over the past two years, they provide for a further increase in taxation of €2.7 billion (equivalent to 0.1 per cent of GDP). In addition to providing an overview of developments in public finances, this note analyses some of the announced tax measures that will have an impact on projected revenue for the 2014 financial year. The changes to income tax are limited but primarily affect households in the top income decile; the increase in VAT rates also has slightly redistributive effects due to the rise in the intermediate rate. Nevertheless, there remain many unknowns regarding the impact on employment of the tax credit for competitiveness and employment (CICE) and the effectiveness of the announced measures to control public expenditure.
2014 Budget: what is the impact of the new tax measures?
This study analyses the economic and redistributive effects of the 2014 Finance Bill.
Reference IPP Policy Brief No. 9
Presentation
Key Results
- The 2014 budget aims to reduce the public deficit by continuing to increase compulsory levies (+0.1 per cent of GDP) and by exercising greater control over public expenditure (-0.3 per cent of GDP). By comparison, the 2013 budget had increased compulsory levies by 1 per cent of GDP.
- Changes to income tax are limited, but are expected to affect the top 10 per cent of households by income more significantly, through the capping of the family quotient.
- The increase in VAT rates will affect all households, but will have a slightly greater impact on the highest income deciles due to the rise in the intermediate VAT rate.
- The CICE is expected to reduce hourly labour costs by at least 1.5 per cent for the 90 per cent of employees with the lowest gross hourly wages. Its impact on employment and wages remains uncertain.
