The next Budget will be an election Budget, meaning it will be the Budget that is likely to precede the next General Election, and also will be a defining opportunity for the new Cabinet ushered in by a new Taoiseach, Simon Harris to set out an election agenda for the next five years for the 3 Coalition parties. The August 2023 edition of Finance Dublin featured in its cover story your overview of the Budget Submissions for the 2023 Budget. (a) Taking these as a starting point, can you suggest ‘unfinished business’ that might be picked up from these?
Michelle Adams, Manager, Financial Services Tax: As Budget 2025 will be an election budget, it serves as an opportunity for the new Cabinet led by the new Taoiseach, Simon Harris, to outline the current and future plans for the 3 Coalition parties.Upon reviewing the highlights for the Budget 2024 submissions, it is evident that the key focus areas for Budget 2025 will be similar. The Irish housing crisis, personal tax system, SMEs and foreign direct investment remain as top priorities for stakeholders and the public in the upcoming Budget.
The Irish housing shortage is a significant issue and is featured in various media platforms daily. The Budget 2024 submissions included various areas for change including an extension of the “Help to Buy” scheme, tax measures for the cost of building houses, VAT reductions for construction materials and tax reform for landlords. These changes are still considered to be key focus areas going into Budget 2025. The Minister for Finance, Michael McGrath, recently commented that he plans to extend the Help to Buy scheme beyond 2025 which is positive news. He also advised that he wants to increase the rent tax credit for a “number of years into the future” but is not committing to an increase until resources are reviewed.
For Ireland to remain competitive and to attract foreign investment, our personal tax system needs to be a key area for change with a reduction in the marginal cost of employment for employees and businesses. A change to the personal tax system should also be an attractive incentive to keep highly talented people in Ireland. Budget 2024 did introduce an increase in the standard rate band for individuals and couples, an increase in the 2% USC threshold and reduction in the 4.5% USC rate to 4% and as well as an small increase in tax credits. While these changes were welcomed, they do not put the personal tax system at the same level as other countries and so changes to the system should still be a key area of focus for Budget 2025. This should include an increase on the entry point to the marginal income tax rate, the introduction of an intermediate tax rate and band, and a cap on the level of earnings which PRSI applies.
The taxation of SMEs should also remain a critical focus area that will extend to Budget 2025. The Irish tax system should support entrepreneurship to drive economic growth. Key changes are needed including simplifying reliefs such as the Key Employee Engagement Programme, Employment Investment Incentive Scheme (EIIS) and Research and Development (R&D) tax credit for SMEs.
There is much to consider, but a Budget 2025 that addresses the above key areas will be welcomed by stakeholders and the general public of Ireland.
Content adapted from Finance Dublin’s Irish Tax Monitor.