Budget 2024: Focus must be on competitiveness

In his post-Budget 2024 analysis, PwC’s head of Tax Paraic Burke urges that the focus must now be placed on ensuring Ireland’s competitiveness.

As expected, negotiations for Budget 2024 went down to the wire. With plenty of fiscal firepower at the Government’s immediate disposal, funding wasn’t an issue.

Instead, the threat of further inflation and capacity constraints within the economy loomed large over Ministers McGrath and Donohoe as they fielded requests from stakeholder groups.

With a total €14bn package, Budget 2024 was a broad-based budget, putting money back into people’s pockets, with positive news for many groups.

Personal taxation measures

In Budget 2024, the Government took the opportunity to relieve some of the tax burden on individuals still facing increases in the cost of living. The measures will put some money back in taxpayers’ pockets, which should help mitigate those increased costs.

The key measures include:

• Changes in the USC, increasing the ceiling of the 2% rate to €25,760, cutting rates from 4.5% to 4% for incomes between €25,761 and €70,044, in addition to increasing the standard rate income tax cut-off point by €2,000. Increases were also announced to various personal tax credits.
• Three energy credits of €150 per household between late 2023 and April 2024.
• All rates of PRSI will increase by 0.1% from 1 October 2024.
• Support for those struggling with rising mortgage interest rates on their principal residence, with the announcement of a one-year targeted mortgage interest relief, capped at €1,250 in relief per property.
• Company car benefit-in-kind (BIK) reliefs extended to 2024, temporary universal relief of €10,000 and extension of relief on battery electric vehicles to 2025. The combined effect will mean a €45,000 deduction on the car value on which BIK is computed for electric cars.

Maintaining Ireland’s competitiveness in the context of international tax reform

From a corporate tax perspective, there are few surprises in Budget 2024. Finance Bill 2023 — to be released next week — is expected to include detail on the measures below, which were referenced by the Minister in his Budget Day speech.

The key measures touched on today include:

• The Pillar Two rules, implementing a minimum effective corporate tax rate of 15%, will be included in next week’s Finance Bill.
• The Minister reiterated his commitment to the introduction of a territorial regime in next year’s Finance Bill. This follows the recent release of the roadmap and public consultation in relation to the introduction of a participation exemption for foreign dividends and branches.
• Further changes to the R&D tax credit regime by increasing the R&D tax credit rate from 25% to 30% and increasing payment thresholds for small and medium-sized companies. These are very positive announcements that endorse the importance of Ireland’s R&D tax credit in anchoring and stimulating further investment in R&D tax activities in Ireland.
• All of the corporation tax measures introduced by the Minister today add to an already complex Irish tax system. We welcome comments from the Minister today acknowledging the complexity of Ireland’s current interest deductibility rules and his commitment to engaging with stakeholders on this issue, as well as Revenue’s commitment to establishing a new group focused on identifying opportunities to simplify and modernise the administration of business supports.

Supporting innovation among indigenous Irish business

Budget 2024 announced further support measures for private Irish businesses, with the Minister acknowledging their significant contribution to the Irish economy.

The key measures include:

• A new targeted CGT relief for angel investors in innovative start-up SMEs who hold their investment for a minimum period of three years. The relief provides CGT relief for qualifying investments up to twice the amount of their original investment, subject to a €3m lifetime limit.
• The Employment Investment Incentive (EII) scheme was also significantly enhanced by standardising the investment period for all investments to four years and doubling the amount upon which relief can be claimed by an investor to €500,000.
• An increase in the age limit from 66 years to 70 years for qualifying individuals claiming the maximum Retirement Relief from CGT. The Minister also introduced a new maximum limit of €10m for disposals to a child up until the age of 70, both of which are due to take effect from 1 January 2025.
• Increases in the entry point at which a business is required to operate VAT to €40,000 for supplies of services and €80,000 for supplies of goods.
• The increase in the R&D tax credit, as well as a doubling of the first-year payment threshold from €25,000 to €50,000 mentioned above will come as a welcome addition for many private businesses involved in R&D activities.
• An increase in the current project cap on qualifying expenditure for the Film Tax Credit, extending it from €70 million to €125 million.

Investing in key elements of infrastructure and climate action initiatives

The Minister re-emphasised the Government’s commitment to tackling climate change. While the measures introduced are very welcome, significant additional measures will be required in future years to address what is a key challenge in today’s world.

The key measures include:

• The introduction of the €14bn Infrastructure, Climate and Nature Fund, which will grow incrementally by €2bn each year for seven consecutive years to allow for sustained levels of investment in infrastructure in the event of economic downturns and to support climate and nature-related projects.
• An increase in the exemption from income tax, PRSI and USC for profits and gains earned by qualifying individuals related to the domestic generation of electricity that is supplied to the national grid from €200 per annum to €400 per annum.
• Accelerated capital allowances for energy efficient equipment are extended by a further two years to 31 December 2025.
• An increase in carbon tax from €48.50 to €56 per tonne of CO2. The increased rates apply to petrol and diesel from 11 October 2023 and to all other fuels from 1 May 2024.
• VRT relief for battery electric vehicles up to a value of €50,000 has been extended to the end of December 2025.

Property

Budget 2024 has introduced a number of property changes aimed at helping new home buyers and encouraging the letting of more properties on the market.

The key measures include:

• The Help To Buy (HTB) scheme, which was due to expire on 31 December 2024, has been extended to 31 December 2025. Applicants for the Local Authority Affordable Purchase Scheme will also be eligible to apply for the HTB scheme. Consideration will be given over the coming year as to whether further updates are needed to the scheme.
• An extension and increase in the rental tax credit, rising from €500 to €750 with eligibility extended to  parents who have children in rent-a-room or ‘digs’ accommodation. The option to claim this tax credit will be backdated for FY2022 and FY2023.
• A targeted mortgage interest relief for mortgage holders on variable and tracker mortgages on their primary dwelling, up to €1,250. 

Small landlords will be entitled to relief at the

• standard rate of income tax on the first €3,000 of rental income earned in FY2023, the first €4,000 of rental income earned in FY2024 and the first €5,000 of rental income earned in FY2025 and FY2026. A full claw-back of the benefit of the relief applies in the event the landlord removes from the rental market, within four years, any of the rental properties held in year one when the benefit is claimed. There is no clawback after the expiry of the four-year period.
• The rate of Vacant Homes Tax (VHT) has been increased to five times (from three times) the basic local property tax rate. This will take effect from the next chargeable period for VHT, which is 1 November 2023.
• The first liability date for the Residential Zoned Land Tax has been extended by one year to allow for the planned 2024 review of maps to take place and to afford affected people a further opportunity to engage with the process.

Economic resilience

Through Budget 2024, the Government has tried to balance cost-of-living relief with measures that will build the country’s economic resilience over the long-term.

As a small open economy, Ireland is vulnerable to external shocks. It is also struggling with domestic challenges that will take time to resolve — from housing to health, from climate to infrastructure.

Many of the measures announced today seek to address many of these challenges and are certainly welcome. The measures targeting certain private companies will also help these organisations scale-up.

We are also of the view that the new Future Ireland Fund and Infrastructure, Climate and Nature Fund are innovative proposals that should allow for sustained and strategic long-term investment in key areas. It will be interesting to see further detail on these when it is available.

As we move forward, in the context of the introduction of the Pillar Two 15% effective minimum corporate tax rate and the increasing complexity of Ireland’s tax code, a focus must now be placed on ensuring Ireland’s competitiveness, both in terms of foreign direct investment and the indigenous economy.