Budget 2025 commentary: Leading you from policy to progress

Budget 2025, a “firm footing for the future” is not just the financial plan for the year ahead, it also sets out the government’s strategic vision, the Minister’s “hope” for the future.

The Budget was both the first for Finance Minister Jack Chambers and possibly the last for the current government. Such two rare facets conceivably intensified negotiations and also pre-budget hype among the electorate and media. The fiscal space against which Budget 2025 is set is arguably unlike any we have seen in recent years, with a General Government surplus of €23.7bn projected. Such a significant surplus is built, per the Minister for Finance’s comments upon “windfall taxes” and the one-off revenue from the recent Court of Justice of the European Union judgment. When these elements are stripped out, we see a very different picture of the economic reality underpinning Budget 2025 with a projected deficit of €6.4bn for 2024. The recent disposal of part of the State’s shareholding in AIB has contributed €3 billion for infrastructure spending.

With a total Budgetary package of €10.5bn, some €1.4 billion was allocated to tax measures with an expenditure package of €6.9bn with an additional €2.2bn in cost-of-living one-off measures.

Income tax

Measures to support households and workers took centre stage and are expected to relieve some of the continuing cost-of-living pressures. A three-pronged approach to personal tax will mean that, from 1 January 2025, the standard rate cut off point will increase by €2,000 to €44,000, with the main income tax credits boosted by €125 and other tax credits increased by amounts up to €300. The entry level to the Universal Social Charge (USC) will be increased by €1,622 and the 4% rate cut by 1% to 3%. This should mean that individuals who earn up to €20,000 in a year will be outside the tax net.

Energy costs remains a pressure for businesses, and this was recognised by the Government through the provision of a €250 energy credit for all households, to be paid in two equal payments. A further €300 lump sum payment will be made to recipients of the Fuel Allowance in November 2024.

Enhancements to the rent tax credit, mortgage interest relief and an extension to the Help to Buy scheme, along with increases to stamp duty on residential property, mean that the risk for government here is the balancing act of assisting homeowners while simultaneously preventing further increases in house prices and consequently the amount individuals will need to borrow.

Capital Taxes

Campaigns for cuts to the tax arising on inheritance of the family home were in the spotlight in the lead up to Budget Day and materialised with welcome increases to all thresholds. Similarly the Minister announced tweaks to the operation of the retirement relief cap but it is disappointing that these caps were not abolished entirely, as the changes announced will likely complicate the relief and not achieve the objective of supporting family succession.

The financial ecosystem

The Minister referred to the planned introduction of the participation exemption for foreign sourced dividends and distributions, the ongoing consideration of a foreign branch exemption, and the review of the tax rules for interest. These are all important steps towards the simplification of our tax system, which should provide much needed certainty for taxpayers and should bolster our FDI offering.

Measures to boost domestic direct investment “DDI” did feature as part of Budget 2025, as there were some positive measures in relation to businesses and entrepreneurs, with tweaks and extensions to a number of existing reliefs, including an increase in lifetime limit for the angel investor relief.

Previous pre-Budget submissions have in the past focussed on the importance of share-based remuneration and the role it plays in helping businesses thrive and grow. While the Minister said he would review the recently published Indecon review of share-based remuneration, we would have significant concerns with some of their initial recommendations such as the imposition of employer PRSI on shares. We look forward to engaging with the Minister on this in due course.

Advancing green ambitions

It is widely reported that Ireland is not on track to meet its 2030 climate targets. The series of measures announced in Budget 2025 will support decarbonisation and Ireland’s efforts to advance its green agenda. We at Deloitte have been advocating for a new decarbonisation refundable tax credit; it was disappointing not to see this materialise in the Minister’s Budget speech. Targeted taxation measures geared towards climate goals were relatively conservative with amendments to VRT on battery electric commercial vehicles, amendments to emission thresholds, carbon tax increases and reduced VAT on heat pumps announced as part of the overall taxation package.

Conclusion

In our view, as always, the devil will be in the detail of Finance Bill 2024, which we will watch with interest when it is presented before the Dail on 10 October 2024.

We hope you will find Deloitte’s commentary on Budget 2025 insightful and informative. Keep an eye out for our insights on the Finance Bill when it is published later this month.