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More supports needed to boost domestic economy, diversify corporate tax base and incentivise decarbonisation, Deloitte pre-budget submission says

Budget 2025 should focus on broadening the tax base, diversifying the Irish economy and sustaining Foreign Direct Investment (FDI) while doubling efforts to support Domestic Direct Investment (DDI), Deloitte’s pre-budget submission recommends.

The submission proposes a series of measures to fortify Ireland’s economy against future shocks, maintain competitiveness and ensure further growth. This includes a wide range of tax changes to promote green investments, to address systemic infrastructural blockers to growth, support innovation and digital transformation, create fiscal buffers, and address the housing shortage.

Deloitte warns that the country’s high personal tax rates and the cost of doing business remain a disincentive to businesses locating in Ireland, to employees taking on additional work and to foreign based talent relocating or returning to the country.

The submission calls for a progressive and broad-based personal income tax system to support economic growth and grow tax revenues into the future.

It states that Ireland could become a leader on decarbonisation if ambitious fiscal policies are introduced, and warns that while such measures may impact the State’s revenue stream and require financial investment, the cost of inaction would be more substantial.

Key recommendations include:

  • Tapered Capital Gains Tax relief for entrepreneurs who stay with and seek to scale their businesses – these are the organisations that will diversify our tax base and help Ireland develop its Domestic Direct Investment (DDI) landscape
  • An enhanced R&D credit for the safe development, implementation and use of Artificial Intelligence
  • A separate tax credit to assist businesses with digitalisation
  • SMEs are the backbone of the domestic economy and Deloitte urges tax reforms to ensure entrepreneurship is adequately supported. The tax system must be simplified to achieve this
  • Reducing the standard VAT rate to 21%
  • A new standalone decarbonisation tax credit for expenditure incurred by businesses in seeking to lower carbon emissions
  • The reintroduction of corporate tax relief for companies investing in renewable energy firms
  • Introduce a solar energy fund tax regime to encourage investment in solar energy and to reduce cost barriers to entry
  • Lower rates of VRT, motor tax and VAT on electric/hybrid vehicles
  • An increase in the income tax standard rate cut off point to €50,000 and a reduction in the higher rate of income tax
  • A percentage tax exemption for construction workers and a maximum €1,000 tax credit for remote workers
  • A standard tax rate for all rental income linked to properties staying available to renters and to energy efficiency upgrades
  • Extending the existing Help to Buy scheme to second-hand houses and apartments which meet certain pre-specified energy efficient criteria
  • A reduction in the VAT rate applied to the cost of delivering new homes
  • Changes to the Residential Zoned Land Tax to ensure it is not punishing those prevented from advancing developments by factors outside their control
  • A substantial increase in the rent tax credit and improvements to the rent-a-room relief

Daryl Hanberry, Head of Tax & Legal, Deloitte Ireland said: 

The formulation of Budget 2025 is a pivotal moment, presenting both challenges and opportunities in an increasingly shock-prone world. In an era characterised by continuous economic volatility, geopolitical tensions, and environmental uncertainties, it is imperative that Ireland's tax policy is not only resilient but also forward-looking. This is why our submission outlines strategic tax measures designed to address these challenges while rewarding the country’s workforce, enhancing resilience, creating fiscal buffers, promoting green investments, and incentivising innovation and digital transformation.

Tax reform for homegrown and international success

To grow and diversify while supporting a sustainable tax base, Deloitte believes Ireland needs strong levels of both Domestic Direct Investment (DDI) and Foreign Direct Investment (FDI).

Hanberry continued: 

We need to simplify our tax regime and reduce the administration burden on companies operating in Ireland. Revenue now issues more guidance notes and ebriefs annually than there are working days of the year. Our system should not be so complicated to necessitate this.

The proposed reforms include incentives and reliefs to assist businesses undertaking digital transitions or transformations, reducing the VAT rate to 21%, simplifying the conditions required to qualify for angel investor relief and introducing a stamp duty relief on the transfer of commercial properties from one business-owning generation to the next.

Deloitte recommends a tapered Capital Gains Tax relief regime for entrepreneurs who stay with and seek to scale their businesses. The reduction would depend on the length of ownership of the relevant assets by the individual concerned and would reward commercial longevity, signal Ireland as an excellent place to operate as an entrepreneur and encourage direct domestic investment and future domestic employment.

The submission also calls for a tax credit to assist business with digitalisation and an enhanced R&D credit for the safe development, implementation and use of AI.

Daryl Hanberry said:

While there are numerous forces which already drive a successful entrepreneurial landscape in Ireland, such as a skilled workforce, digitalisation, and technological advances, critical to all of these forces is our tax system, which should act in a coherent manner to promote greater domestic investment. It is imperative from an entrepreneurial perspective that our tax system promotes and incentivises innovation, encourages longevity and scaling up and does not punish failure. 

Hanberry added: 

Artificial intelligence is progressing rapidly, with many businesses spending substantial resources on developing and implementing generalist AI systems that can now act autonomously, doing incredible tasks in various fields including science, technology and art. However, increases in capabilities and autonomy also increase risks, for example, large-scale social harms, malicious uses, and an irreversible loss of human control over autonomous AI systems. To help address this, the government should introduce a new enhanced R&D credit to support the safe development, implementation and use of AI.

Incentivising decarbonisation

The submission states that Ireland can be a leader on decarbonisation and the green transition, but getting there will require the introduction of new tax measures, incentives and reliefs in addition to changes to existing ones.

A key recommendation is the introduction of a decarbonisation tax credit modelled on the existing R&D tax credit and applied to expenditure incurred by businesses in seeking to lower carbon emissions.

Deloitte also recommends the re-introduction of corporate tax relief for equity investment in companies involved in renewable energy generation and the creation of a new regime that would allow for companies and groups involved in investing in, developing, or providing financial loans for solar energy projects to qualify as tax exempt.

To encourage the wider adoption of electric and hybrid vehicles, the submission calls for lower rates of VRT and motor tax on hybrid/electric vehicles. It also says the government should consider lowering the VAT rate on such cars to bring their cost to a more competitive level.

Hanberry said:

The existing R&D tax credit is focused on scientific advancements and innovation, and the new decarbonisation tax credit will not replace it, as instead of achieving innovation and scientific advancement, it will be focused on lowering carbon emissions.

He added: 

The solar energy industry has the potential to make an important contribution to Ireland’s growth agenda and the diversification of industry in rural Ireland. We need to support those building sustainable infrastructure to take advantage of our wind and water natural resources. The accelerated deployment of solar, wind and other renewable energy technologies would generate jobs, particularly in the construction and installation sectors. A larger domestic market can enhance Ireland’s offering as a location for firms in the solar energy supply chain, which could bring further jobs and investment in high-tech, exporting industries.

Personal tax reform to reward workers and amendments to support our Olympic athletes

Deloitte’s submission recommends a substantial income tax and USC reform to broaden the tax base and make the personal tax regime attractive for workers and businesses. It says this is vitally important in a highly mobile and competitive world and during a time of demographic transition. It also argues that it would help foster economic growth and encourage entrepreneurship, ultimately creating a vibrant ecosystem of startups and SMEs.

The submission says the entry point for the higher rate of income tax places a significant burden on middle income owners. It recommends increasing the standard rate cut-off point to €50,000 and reducing the higher rate of income tax.

The submission also recommends improving support for athletes. Deloitte, working with the Olympic Federation of Ireland’s Athletes’ Commission, is calling for the expansion of the sportspersons relief to include appearance fees and sponsorship, and legislative amendments that ensure athletes’ access to social welfare, including State pension entitlements, are not impacted during their representation of Ireland.

Daryl Hanberry said:

We believe that Ireland’s personal tax system should continue to evolve in order to attract key talent, for example the supports for our athletes. More generally Deloitte believes that we need to keep the focus on competitive personal income tax rates and incentives that will enable Ireland to continue to attract key talent, bolstering the country’s workforce and stimulating innovation. This competitive advantage will enhance the country’s global competitiveness, enticing multinational corporations to establish operations, thereby boosting employment and investment. Additionally, competitive personal tax policies will contribute to higher disposable income for individuals, encouraging consumer spending and driving domestic demand.

Delivering homes for people and business

The housing crisis continues to be one of the biggest challenges facing the country, affecting competitiveness, talent retention and sustainable long-term exchequer returns. 

Deloitte’s submission outlines a number of recommendations to increase supply, including a standard tax rate for rental income linked to properties remaining in the rental sector for long periods of time and to energy efficiency upgrades.

Deloitte urges the government to consider reducing the VAT rate and other tax input costs applicable in connection with residential development. It also recommends amendments to the Residential Zoned Land Tax to ensure it is not punishing those that are genuinely trying to advance developments but are being prevented from doing so by reasons outside of their control.

The submission says the government should extend the existing Help to Buy scheme to second-hand houses and apartments which meet certain pre-specified criteria designed to encourage sellers to ensure their homes are a certain level of energy efficiency prior to selling.

It states that the rent tax credit should be substantially increased to have a real and meaningful impact on the cost of living for tenants. On the rent-a-room relief, Deloitte says the limit of €14,000 a year in gross income from the rent should be changed to apply to net income, thereby making the scheme more attractive to homeowners.

To boost the availability of much-need workers in the construction sector, the submission says consideration should be given to a specific percentage tax exemption for their earnings, which would expire after five years.

Daryl Hanberry concluded: 

The key policy challenges to addressing the imbalance between housing supply and demand include funding, viability and delivery. Relieving capacity constraints through tax policy, particularly with regard to labour, will be key to achieving higher output and addressing the delivery challenge.

Deloitte’s Pre-Budget 2025 Submission, Innovate Ireland: Simple Taxes, Thriving Businesses, Sustainable Future is available online here