The final Budget of the current Government is more than just a fiscal plan — it’s a political statement with a general election looming, writes Paraic Burke, Head of Tax, PwC Ireland.
The latest exchequer returns show bumper tax receipts, but there is no certainty over our future corporate tax revenue streams.
A careful balance will need to be struck – targeting resources where they are needed most, supporting the productive part of the economy while not stoking inflation. What really matters is solving the housing crisis, supporting the future growth capacity of our economy and the transition to net zero.
“Ensuring employees’ take-home pay is not over taxed while rewarding our entrepreneurs for worthwhile risk taking are important”
Budget 2025 is expected to introduce generous tax and spending measures. However, much of the budgetary package is already earmarked for existing commitments. Additionally, much of the taxation package will likely be used to offset inflation.
This leaves little room for significant new tax measures unless additional revenue streams are identified. Below, we outline key issues and potential measures that Government should consider as it frames Budget 2025.
Fix the housing crisis
The housing crisis threatens Ireland’s economic growth as it affects businesses’ capacity to attract and retain talent. The supply of affordable housing will be a defining issue in the next general election.
Tax policy can help reverse this situation. PwC suggests extending the retrofitting scheme to modernise housing stock, reducing tax costs for businesses letting properties to staff at below-market rates, and incentives for carbon-efficient building methods, including modular homes.
Ease the tax costs of workers and entrepreneurs
Ensuring employees’ take-home pay is not over taxed while rewarding our entrepreneurs for worthwhile risk taking are important.
A welcome measure would be to eliminate the 3% USC surcharge on self-employed incomes over €100,000. For employees, keeping the higher income tax rate aligned to average salaries (i.e. so that people on average salaries are not hit with the top rate of tax of 40%), offering tax-efficient non-cash benefits via the small benefit exemption or through share-based remuneration would all be welcome.
It would also be very welcome to see Government setting out a Roadmap on the future vision for personal tax.
Support private businesses
Supporting private businesses, who are facing many pressures, must be a priority. Employing close to 1.2 million people, the sector is crucial to the economy. Pro-growth measures are needed to reduce the country’s dependence on the multinational sector.
PwC suggests a temporary employers’ PRSI rebate of 50% for lower-wage workers for an initial 12-month period, helping businesses offset the cost of salary increases. Other measures include taxing interest earned on loans by angel investors at 12.5% (instead of 25% currently); increasing the lifetime limit for Revised Entrepreneur Relief to €5 million (from €1m) and removing cash as a non-qualifying asset for Capital Acquisitions Tax (CAT) business relief purposes.
Promoting a green economy
The energy transition is another critical growth area as Ireland aims to reduce greenhouse gas emissions by 51% by 2030 and achieve climate neutrality by 2050. Promoting renewable energy investments and decarbonisation efforts are essential. Budget 2025 should introduce tax incentives to promote clean technologies, renewable energy activities and green industrial infrastructure. Additionally, Government can implement tax measures to encourage households and communities to adopt sustainable energy consumption and transport methods.
Simplifying the tax system
Budget 2025 must prioritise simplifying the tax code to make Ireland more competitive and facilitate the ease of doing business. Measures include interest deductibility rules and simplifying reliefs like the research and development (R&D) tax credit and Employment Investment Incentive Scheme (EIIS) to make them more accessible to private companies.
Expanding real-time reporting to include non-taxable benefits and expenses has created a disproportionate compliance burden on employers. A shift to an annual reporting regime for these benefits would be more efficient
Enhancing Ireland’s appeal for FDI
Budget 2025 must outline a coherent strategy to enhance Ireland’s appeal for FDI. Broadening the tax exemption on certain foreign dividends to include all dividends and foreign branch profits would further boost Ireland’s attractiveness as an investment location.
Budget 2025 should also prioritise tax measures that position Ireland as a hub for sustainable finance as well as reviewing the taxation of exchange-traded funds (ETFs) to increase their accessibility.
Re-election hopes
This final fiscal set piece represents a critical opportunity for the Government’s re-election hopes. Government will struggle to meet the expectations of an electorate squeezed by cost-of-living pressures. There will be limited fiscal flexibility on Budget Day.
Housing will be a pivotal issue in the next general election, compounded by concerns that Ireland may miss its 2030 emissions targets. Government is under pressure to address these urgent needs, but finite resources mean not all interests can be satisfied. How the Government allocates this limited Budget package could prove decisive come polling day.
Main image at top: Paraic Burke, head of Tax at PwC Ireland, with Minister for Finance Jack Chambers, TD
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