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									         IFA Report on the 2008 Budget

Introduction – Reform of the Budgetary Process

Part I     Government Expenditure in relation to
           Agriculture/ Estimates for 2008

Part II    Taxation

Part III   Social Policy

Part IV    The Public Finances and the National Economy

Overview of 2008 Budget
In the past the annual budgetary process involved two stages:

   -   Publication of the public spending estimates about three weeks before budget day;
       most policy changes were built into these estimates, with the notable exception of
       social welfare rate increases, which were traditionally announced on budget day.

   -   Budget day announcements on taxation changes, social welfare rates, and the annual
       budget balance (budget surplus or borrowing requirement).

A first step in reform of budgetary process took place last year, in terms of the publication of
a Pre-Budget Outlook in October 2006, which provided economic and fiscal projections for
the medium-term in advance of budget day.

A major reform has now taken place in the 2008 budgetary process: the Government has
moved to a unified budget. This means that all the key announcements on both the spending
side and the revenue side of the budget are announced on the same day.

The other significant change as part of the new budgetary process is the publication in
October 2007 of Pre-Budget Estimates for the Public Services for 2008. These were
published in conjunction with the pre-Budget Outlook. These pre-Budget Estimates are
baseline figures which are costed on the assumption of continuing the current level of public
services for 2008. These “existing level of services” or “ELS” estimates are based on the
following methodology. Firstly, the figures allow for inflators, both pay and non-pay.
Secondly, they allow for the full year costs of improvements in services introduced during
this year. They also allow for demographic changes, which will increase the costs of the
existing services next year.

As the pre-Budget Estimates are presented on an “existing level of service” basis, new policy
initiatives and significant improvements on existing policies are not included at that stage.
These are announced together with the tax measures on Budget Day, and provided for, in full,
in the Budget Estimates.

Part I of this report sets out the details of Government Expenditure in relation to Agriculture.
Part II covers the main Taxation changes, and Part III the main Social Policy changes with
particular reference to agriculture/farm families. Part IV deals with developments and
outlook for the public finances and the national economy.


Department of Agriculture, Fisheries and Food (DAFF)

The following is a summary of the gross expenditure by the Department of Agriculture,
Fisheries and Food (DAFF), the receipts to the Department (mainly from the EU), and the net
expenditure for 2007 and 2008. (The estimates do not include expenditure fully funded by
the EU, such as the Single Payment, but gross expenditure includes measures part-funded by
the EU, and the EU funding element is deducted under “receipts”).

           DAFF (€m)               2007        2007        2008     % change
                                 estimate    forecast    estimate   from 07
                                             outturn                outturn
           Gross expenditure       1,780      1,667        1,907     +14.4%
           Receipts                 424         502         451      -10.2%
           Net expenditure         1,356      1,165        1,456      +25%

Relative to the 2007 forecast outturn, gross expenditure by the DAF for 2008 is up by 14.4%. Net
expenditure by the DAF, i.e. the cost to the National Exchequer, is up by 25%.

                       MAIN ITEMS OF EXPENDITURE BY DAFF (€M)
 Gross Expenditure                               2007     2007     2008       % change
                                               estimate outturn* estimate     from 2007
  Pay and administration                         297.2   297.2     312.2         +5%
  Research and training                           38.5     38.5     42.1        +9.3%
  Food safety, animal health and welfare         166.5     139      186         +33.8%
  - TB & Brucellosis                            (51.1)     (50)   (52.4)        +4.8%
  - BSE                                         (14.9)   (14.5)   (12.3)        -15.2%
  - Suckler herd welfare/quality                (18.0)       0      (33)           -
  Market supports                                 30.8     30.8     19.4         -37%
  Disadvantaged Areas                            257.0     257      257            -
  REPS                                           361.0     308      370         +20.1%
  Land mobility                                   80.1      60       66          +10%
  - Early retirement                            (72.0)     (54)     (56)        +3.7%
  - Installation                                 (8.1)      (6)     (10)         +66%
  Development of Agriculture & Food              152.2              238
  - Farm Waste Management                       (82.8)    (108)    (150)        +38.8%
  - Farm Improvement Scheme                      (3.0)      (0)     (15)            -
  - Marketing & Processing                      (42.0)     (13)   (40.7)        +213%
  Forestry and Bioenergy                          131      126      131           +4%
  Teagasc                                        128.1   128.1     132.5          +4%
  Bord Bia                                        26.5     26.5     27.5        +3.8%
  Fisheries                                      119.4       -     128.2        +7.3%
  Other Services + Food Aid                       29.1     29.1     28.7         -1.4%
(*where significantly different from estimate)

Main Changes in Expenditure or Policy by DAFF

Food Safety, Animal Health and Welfare, and Plant Health: The expenditure estimate for
2008 has increased by almost 34% over and above the 2007 outturn. The main increase
under this heading is the Suckler Herd Welfare Scheme, which has an allocation of €33m for
2008, including an additional €15m provided in the budget. The allocation for TB and
Brucellosis has increased by nearly 5% to €52.4m.

REPS: The outturn in 2007 for REPS will be about €308m, which is lower than expectation
mainly due to the delays in the start up of REPS 4. The allocation for 2008 is €370m, which
is a 20% increase, and it is expected that the number of farmers in the Scheme will be about
60,000 during the course of the year. The REPS 4 Scheme involves a 17% increase over
REPS 3 payment rates and a 52% increase over REPS 2 rates.

Land Mobility: Expenditure of €54m under the Early Retirement Scheme in 2007 was down
on expectation due to the low uptake so far for ERS 3. The allocation of €56m for 2008
should be adequate to cover all new applicants as well as the 6,000 farmers who are still in
ERS 1 & 2.

Forestry: As part of the increase in capital expenditure allocated to agriculture €10m is
directed towards forestry infrastructure.

Development of Agriculture & Food: The main schemes covered under this heading are the
on-farm investment schemes. The total allocation for Farm Waste Management (FWM) and
Farm Improvement Scheme (FIS) is €165m.

€150m is allocated to the Farm Waste Management Scheme, which is almost a 40% increase
on 2007. An additional €35m was provided to FWM from unallocated capital in the Budget.
This level of funding should pay grant aid to around 7,500 farmers. This is on top of the
5,000 farmers who got paid their grant aid under the FWM in 2007. In total 34,000 farmers
have an approval under Farm Waste Management. Once an approval is issued to proceed
with work under the scheme the Department is legally obliged to pay farmers if they
complete the job to the Department of Agriculture’s specification. There is likely to be a
large carry over into 2009 of the obligations under this scheme. As it stands at the moment
under the EU state aid approval, work under this scheme must be completed by the end of
2008. IFA will be reviewing this situation in the course of 2008.

In relation to the FIS, €15m is allocated which IFA believes is seriously inadequate to cover
the level of applications which have already been lodged. As this was a demand led scheme
additional funding will have to be provided to first of all get ensure that the 12,700 farmers
who have applied get approval to proceed with work, as well as the reopening of the scheme
in 2008.

This will obviously be a major issue to be raised by IFA in the review of the Social
Partnership Agreement during 2008 when the pay element of the Agreement is up for

Other Government Departments – Expenditure on Agriculture/Rural Issues

Community, Rural and Gaeltacht Affairs: The following table contains the elements of
most direct relevance to farmers and farm families (€m).

                                                        2007 est.    2008 est.
             Rural Development (incl. LEADER)             31.0        33.00
             CLAR                                         18.7         21.1
             Rural Social Scheme                          44.6         50.3
             Rural Recreation & Rural                      4.6          8.6
             Development Schemes

Under the heading of Rural Recreation and Rural Development Schemes an additional €4m is
provided to commence the trail maintenance and management scheme, which IFA have been
pursuing for some time. This scheme will be rolled out in 4 pilot areas in the coming months
to be extended nationally over the next 18 months.

Social and Family Affairs: The allocation for Farm Assist was €81.3m in 2007 and €87.6m
for 2008. Some farmer participants have transferred to the Rural Social scheme in recent

Environment, Heritage and Local Government: €7.4m is allocated to the National Parks
and Wildlife Service to pay farmers under their National Farm Plan Scheme for income and
capital losses associated with designations under Natura 2000 (SACs, NHAs, SPAs and
commonages). It is envisaged that this figure may rise in the course of 2008 particularly in
Hen Harrier areas where the compensation negotiated by IFA is greater than the REPS



Personal Tax Package
The main elements of the personal tax package, which take effect from 1 January 2008, are as

                               Main Changes to Income Tax
                 Personal Credits increased by €70 single/€140 married to
                 €1,830 single/€3,660 married

                 PAYE Tax Credit has been increased by €70 to €1,830.
                 New Standard Rate Bands from 1 January 2008
                                                Current        Proposed
                 Single                        €34,000          €35,400
                 Married One Income            €43,000          €44,400
                 Married Two Incomes*          €68,000          €70,800
                 Lone Parent/Widowed
                                               €38,000          €39,400
                 The standard income tax rate of 20% and higher rate of 41%
                 remain unchanged.
                 Age Exemption Limits (single/married)
                 increased from €19,000 single /€38,000 married to €20,000
                 single/€40,000 married
                 2% Health Levy remains unchanged, weekly threshold
                 raised from €480 to €500 per week, and from €24,960 to
                 €26,000 per annum.

                 3 % self employed PRSI rate remains unchanged.
        *With a maximum transferability between spouses of €43,000 in 2007 and €44,400 in 2008

Mortgage Interest Relief: Ceiling on mortgage interest relief for first time buyers will be
increased by €2,000 for a single person and €4,000 for a married couple or widowed person
to €10,000 and €20,000 respectively.


EU Sugar Beet compensation – Diversification Aid: Income from Diversification Aid
payments will be spread over 6 years for the purpose of calculating income tax liability.

Milk Partnerships and income averaging: The Minister announced that a provision will be
included in the Finance Bill to prevent a claw-back of income tax where a farmer on income
averaging subsequently enters a milk production partnership.


Farm Partnerships: The Minister announced a new relief from Capital Gains Tax on the
break-up of a farm partnership will be introduced in the Finance Bill. The relief will run for a
period of 5 years and is expected to cost €5 million in a full year.
Site to Child Exemption: The exemption threshold on relief from Stamp Duty and CGT is
being increased from €254,000 to €500,000, (but the 1 acre limit continues). The change
applies to disposals made on or after budget day.


No changes.


No changes to self-employed PRSI.


The Minister announced a revised VRT system under which CO2 emissions of a car will
replace engine size as the criterion to determine the VRT rate payable at the point of
registration. The revised rates will take effect from 1 July 2008.

                           CO2           g CO2/km         VRT rate
                            A             0 - 120 g         14%
                            B            121 - 140 g        16%
                            C            141 - 155 g        20%
                            D            156 – 170 g        24%
                            E            171 – 190 g        28%
                            F            191 – 225 g        32%
                            G           226g and over       36%


Flate Rate VAT addition: The farmers’ flat rate VAT addition of 5.2% continues for 2008.

Registration thresholds: The small business VAT registration thresholds will be further
increased from €35,000 per annum for services and €70,000 for goods per annum to €37,500
and €75,000 respectively from 1 May, 2008.

Reduced VAT rate on certain agricultural inputs to produce biofuels: The Minister
announced that he intends to reduce VAT on elephant grass rhizomes, seeds, bulbs, roots and
similar supplies used for the agricultural production of biofuels from 21% to 13.5% with
effect from 1 March 2008.


Farm Consolidation: The Minister has signed the order giving effect to the Stamp Duty
relief for farm consolidation announced in last year’s Finance Act following EU State Aids
approval. This applies to transactions on or after July 1st 2007.

Residential Stamp Duty: The Stamp Duty applicable to residences will be changed with
effect from 5 December. The new regime is as follows :

                Consideration                                Rate

                First €125,000                               Nil
                Balance from €125,001 to €1 million          7%
                Balance over €1 million                      9%

In announcing these changes the Minister announced that the effective tax rate falls at all
levels with effectively no transaction under €1 million being charged at a rate of more than
about 6%.


Stamp duty on credit cards, ATM and debit cards, and combined cards is being reduced. The
change will be part-financed by an increase in the duty on cheques from 15p to 30p per
cheque. This is to encourage increased use of electronically based transactions.


The Minister announced increases in motor tax payable to local authorities of 9.5% for cars
below 2.5 litres and 11% for cars about this threshold.


The Minister announced a number of measures to assist small businesses including :

   -   Changes to the preliminary tax payment arrangements, and
   -   Preliminary tax payment arrangements for start-up companies.

Social Welfare Weekly Rates

Maximum weekly personal rates for all State Social Insurance (Contributory) Pensions will
be increased by €14 from the first week of January 2008. For the State Pension (Non-
Contributory), the maximum personal weekly rate will increase by €12 from the first week in
January. The qualified adult rate for people of pension age will increase by €27/week
bringing it to €200.

For the lowest Social Welfare rates such as Jobseekers Assistance (formerly unemployment
assistance) the increase is €12/week (personal rate). This scheme determines the levels of
Farm Assist payments (see later).

                      Main Social Insurance/Assistance Rates (€/week)
                                                     2007         2008     Increase(%)
      State Contributory Pension
      Personal rate (<80)                            209.3       223.3         +6.7%
      Incl. qualified adult <66                      348.8       372.1         +6.7%
      Incl. qualified adult >66                      382.3       423.3        +10.6%
      State Non-Contributory Pension
      Personal rate (<80)                            200.0       212.0         +6.0%
      Incl. qualified adult <66                      332.2       352.1         +6.0%
      Jobseekers Allowance*
      Personal rate                                  185.8       197.8         +6.5%
      Incl. qualified adult                          309.1       329.1         +6.5%
      Increase for Qualified Child
      Both State pensions                            22.0         24.0         +9%
      Jobseekers allowance*                          22.0         24.0         +9%
       (* relevant to Farm Assist)

From 24th September 2007, in the case of new applications for State Pensions, the Qualified
Adult Allowance is paid directly to the pensioner’s spouse or partner.

Farm Assist

Farm Assist thresholds and rates will increase from January 2008, arising from the increases
in personal social assistance rates from €185.8 to €197.8, the adult dependent rate from
€124.3 to €131.3 (i.e. total of €329.1 for a person with a qualified adult dependent), and the
qualified child rate by €2/week.

Example of Farm Assist Payment:

Married farmer with 2 dependent children.
Assume income from means test of €300 per week.

From January, 2007:           €152/week.
From January, 2008:           €176/week.
Increase:                     €24/week. +15.8%

The income threshold for this farmer to qualify for some level of Farm Assist increases from
€527/wk to €552/wk or €28,730/year.

(Note: IFA will be preparing a detailed information paper on the changes to Farm Assist
thresholds and rates).


Child Benefit will be increased from €160/month to €166 for the first and second children
and from €195/month to €203 for third and subsequent children.

Supporting Carers

The Carer’s allowance and Carer’s Benefit are increased by €14/week. The income disregard
for carers has increased by €25 for a couple to €665.

Medical Card Eligibility

The Department of Health is carrying out a review of the eligibility criteria, which is due to
be completed by next Autumn.

Budget Balance (Budget surplus or deficit):

A requirement under the EU “Stability and Growth Pact” (SGP) is for member states in the
euro to normally have balanced budgets, and a limit on budget deficits not exceeding 3% of
GDP in years of economic down-turn. The measure of budget balance used is termed the
General Government Balance (which is a wider definition than just the exchequer balance).

                       Year        General Government          G.G.B.
                                      Balance (€m)          as % of GDP
                       2003               +233                 +0.2%
                       2004              +2,117                +1.4%
                       2005               +497                 +0.3%
                       2006              +3,980                +2.3%
                       2007               + 900                +0.5%
                       2008              -1,845                -0.9%
                       ( - = Deficit; + = Surplus)

The projected General Government balance for 2007 in last year’s budget was a surplus of
€2,276m or 1.2% of GDP; the outturn was less favourable, i.e. a surplus of €900m or 0.5% of
GDP. The 2008 post-Budget situation is a General Government deficit of €1,845m or 0.9 %
of GDP.

1% of GNP (€1,690m in 2008) is put into the National Pensions Reserve fund annually to
help pre-fund future pension liabilities of the state (both PRSI and public service pensions).

General Government Debt:

The key measure of government debt is the General Government Debt : GDP ratio.
Ireland’s Government debt has declined from 32% of GDP in 2002 to 25.1% of GDP in
2007. The levels the Government debt is about €45.5bn. Ireland has one of the lowest debt:
GDP ratio in the EU; the average Government debt for the EU25 is about 60% of GDP.

The Spending/Taxation balance and the Role of Economic Growth:

The budget each year sets out the Government's priority as regards the balance between (i)
public expenditure, (ii) taxation adjustment and (iii) budget surplus or deficit. The rate of
economic growth has a crucial impact on the growth in tax revenue and thereby the growth in
public expenditure.

                            Year            Growth in Real GNP (%)
                               2003                  5.7%
                               2004                  3.7%
                               2005                  4.9%
                               2006                  6.5%
                               2007                  4.2%
                               2008                  2.8%

Clearly economic growth has slowed down in 2007 and the growth rate in 2008 is projected
to be somewhat lower again at 2.8%.

Public Expenditure:

Net Current Expenditure and Public Service Pay

The following table gives the trend in the net current expenditure on the public services.
The 2008 Budget outcome provides for an increase in current net expenditure on the public
services of 9%.

                              Net Current Expenditure on the
                                      Public Services
                           Year            €m.      % Increase
                              2003        25,444      +9.0%
                              2004        27,247      +7.1%
                              2005        29,723      +9.1%
                              2006        32,921      +10.8%
                              2007        37,100      +12.7%
                              2008        40,420      +9.0%

The net cost of the exchequer pay and pensions bill included in the above is €17,614m in
2007 (relating to 272,000 public servants and 78,000 public service pensioners) and €18,827
m in 2008, an increase of 6.9%. About 41% of pay goes to Health and 32% to Education.

Capital Expenditure

The following gives the trend in voted capital expenditure on the public services for recent
years, and the provision for 2008 of €8,562 m, an increase of 11.2 %.

                            Growth in Net Capital Expenditure
                           Year         €m.        % Increase
                             2003      5,398         +2.0%
                             2004      5,398           -
                             2005      5,835         +8.1%
                             2006      6,631        +13.6%
                             2007      7,700        +16.1%
                             2008      8,562        +11.2%

Tax Revenue:

The total tax revenue was projected to increase in the 2007 budget by 8% to €49,075 and the
2007 out-turn was an increase of 4.1% to €47,325m, a shortfall of €1,750m. The major
contributors to total tax revenue in 2007 were: Income tax (€13,605m), VAT (€14,545m.),
Excise (€5,814m.), Corporation Tax (€6,350m), Stamp duty (€3,195m), and CGT (€3,145m).
The Budget outturn is that taxation is set to increase to €48,910 m in 2008, an increase of

                                      Total Tax Revenue
                         Year               €m.       % Increase
                           2003           31,754        +8.2%
                           2004           35,700        +12.4%
                           2005           39,308        +10.1%
                           2006           45,452        +15.6%
                           2007           47,325        +4.1%
                           2008           48,910        +3.3%

The National Economy / Ireland's Stability Programme:

A feature of the budget is the publication of Ireland's Stability Programme, i.e. economic
and budgetary projections for the next 3 years, in the framework of Ireland's membership of
the euro. As the following table shows, the economy is expected to grow at a moderate rate
in 2008 – 2010.
                      Economic Outlook (Percentage Volume Changes)
                                                        2007 2008 2009 2010
         Gross Domestic Product (GDP):                   4.8      3.0    3.5     4.1
         Gross National Product (GNP):                   4.2      2.8    3.3     3.9
         Expenditure on GNP:
           Personal consumption:                         6.6      3.8    3.9     4.0
           Public consumption:                           4.8      3.6    2.9     2.8
           Fixed investment:                             1.5     -1.6    2.3     3.1
           Exports:                                      6.8      5.6    5.2     5.0
           Imports:                                      5.9      4.5    4.3     4.1
         Inflation – HICP (%)                            2.8      2.4    2.0     1.8
         Employment growth (%)                           3.5      1.1    1.3     1.5
         Unemployment rate (%)                           4.6      5.6    5.6     5.5
         Labour productivity                             1.2      1.8    2.2     2.5

The Stability Programme also projects a good degree of stability in both Government
expenditure and Government receipts as % of GDP. As regards inflation, the Government
seems to want to put more emphasis on the common EU method of measuring inflation called
the “harmonized index of consumer prices” or HICP (which excludes mortgage interest) than
the traditional measure used in Ireland called the consumer price index (CPI).

                              Public Finances ( % of GDP)
                                       2007      2008                  2009   2010
         Government revenue            36.6       36.1                 35.8   35.4
         Government expenditure        36.1       37.0                 36.9   36.5
         Government balance*            0.5       -0.9                 -1.1   -1.0
         Debt : GDP ratio (%)          25.1       25.9                 27.6   28.7
                              (*: The plus sign indicates a surplus)

Public Finances: Economic growth in Ireland stood at 6.5% in 2006 (in GNP terms) but fell
to 4.2% in 2007, and the Government projection for 2008 is 2.8%. The most dramatic
consequence of the slow-down in growth is that tax revenue in 2007 came in at €1,750m
lower than forecasted last Budget day, as it grew by only 4.1%. For 2008, tax revenue is
forecast in the budget to grow by just 3.3%. The lower rate of growth in tax revenue limits
the scope for public expenditure increases and also requires a budget deficit following many
years of budget surpluses. However, the 2008 budget involves a significant increase in
public expenditure of 9.3%, which is in excess of the projected growth in the economy in
money terms (about 5.3%). The budget provides reasonable indexation of tax credits and the
standard band. However, the increase in the PAYE tax credit further discriminates against
the self-employed, including farmers.

The General Government balance for 2008 is a deficit of 0.9% of GDP (€1,845 m). This is
reasonable in the context of the increase in capital spending of over 11%, and also in the
context of avoiding an excessive slowdown in the economy.

Inflation: The policy of the European Central Bank (ECB) is to achieve an inflation rate of
2% or less in the euro zone overall; however it is currently running at somewhat over 2%.
Ireland’s inflation as traditionally measured (consumer price index) in 2007 is 4.9%, although
if the EU measure is used, i.e. the “harmonized index of consumer prices” (which excludes
mortgage interest) the inflation rate is 2.8%. For 2008, the projected HICP inflation rate is

Economic Outlook: The Government is clearly factoring in a reasonable growth rate in the
economy of just over 3% on average in 2008 -2010, which would be strong by EU standards,
but clearly considerably lower than growth rates experienced in Ireland over the last 10 years.
The growth rate in the euro area and the UK in 2008 is projected at 2.2%. The US growth
rate in 2008 is projected at 1.7 %.

Benefits or Costs to Farmers: Agriculture and farm families are affected by the Government
expenditure decisions and taxation decisions for 2008 in the following ways:

Support Policies for Agriculture

            The 14.4% gross increase and 25% net increase (i.e. exchequer funded) in
             public expenditure by the DAFF between 2007 and 2008 is very positive. This
             reflects mainly the improvements to the farm schemes negotiated in the
             Partnership agreement, and increased investment by farmers.

Farm Taxation

               Relief from CGT on the break-up of family partnerships.
               Provision to spread the sugar beet diversification fund aid over 6 years for
                income tax purposes.
               Where a farmer on income averaging enters a milk production partnership the
                provisions that can result in a clawback of income will no longer apply.
               Reduced VAT on certain agricultural inputs to produce biofuels.

Social Policy

      Farm families benefit from the general budget provisions on social welfare rates
       including pensions, child benefit and Farm Assist. An example of the Farm Assist
       increase is for a married farmer with two dependent children with a farm income of
       €300/week; his Farm Assist increases from €152/week to €176/week.

Con Lucey,                                         Gerry Gunning, Executive Secretary
Chief Economist                                    Rural Development Committee

7thDecember, 2007


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