The tax package of €1.3 billion under Budget 2024 casts a wide net across Irish society from income tax breaks for individuals, mortgage interest relief for homeowners, a rental credit increase for tenants, tax relief for landlords, and tax reliefs and supports for businesses. The Budget also provided for tax-raising measures which included the extension of the Bank Levy to raise €200 million.
Just how substantial is the tax package for Budget 2024?
The tax package for Budget 2024 and indeed the tax package for Budget 2023 are substantially larger than the tax measures in the two pandemic Budgets. Even Budget 2019, the last pre-pandemic, pre-cost of living crisis budget, had a personal tax package worth only €291 million. While substantial budgetary packages are becoming the norm, so too are the inflationary challenges facing businesses and individuals. Minister McGrath had to formulate a tax package at the risk of fuelling inflation balanced against the need to take action to provide respite to households and businesses facing another winter of expensive energy and fuel, and high living costs. Given Ireland’s exchequer surplus for 2022 and forecasts of short to medium-term future surpluses on the back of strong tax yields, it is difficult to see how the Government could not have delivered a package of this magnitude.
While substantial budgetary packages are becoming the norm, so too are the inflationary challenges facing businesses and individuals
What are the details of the tax package?
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While the bulk of the tax package of €1.3 billion will be used on income tax measures, several business tax measures were also announced in Budget 2024.
As one of Ireland’s most important tax supports, enhancements to the R&D Tax Credit will be welcomed by both large and indigenous companies. The rate increase from 25 per cent to 30 per cent will maintain the net value of the existing credit for businesses subject to the new 15 per cent minimum effective tax rate resulting from BEPs Pillar Two. SMEs and those companies outside the remit of Pillar Two will benefit from the rate increase. SMEs will also welcome the doubling of the first-year payment threshold from €25,000 to €50,000.
A new capital gains tax relief for angel investment in innovative start-ups has the potential to provide alternative funding streams for new businesses. Qualifying investors may avail of an effective reduced rate of CGT of 16 per cent, or 18 per cent, if through a partnership, on a gain up to twice the value of their initial investment subject to a lifetime limit of €3 million. The detail of how the new 16 per cent (or 18 per cent depending) rate will apply will be set out in the Finance Bill. This is certainly a welcome initiative in supporting enterprises that hopefully avoids being so restrictive as to be of limited practical use. The Employment Investment Incentive and Key Employee Engagement Programme will also be enhanced.
Minister McGrath announced the establishment of a dedicated working group focused on simplifying and modernising the administration of business supports. This is in response to feedback that the rules and requirements surrounding tax reliefs and schemes are complex, which can make them difficult to access. Plans for an extensive public information campaign with Revenue to raise awareness of the range of tax credits and reliefs available to PAYE taxpayers were also announced.
In terms of revenue raising measures, Minister Donohue announced an increase of 0.1 per cent to all PRSI contribution rates with effect from 1st October 2024. Whilst the Minister described it as a ‘modest’ increase, unfortunately, it paves the way for further increases over the coming years to fund the pension system for our aging population.
Wise use of resources
While tax breaks and supports occupy the headlines for Budget 2024, it is important to acknowledge the fiscal prudence demonstrated by the Government in plans to establish two new funds to ensure that windfall taxes do not become part of Ireland’s core national spending. The Future Ireland Fund will help fund healthcare, pension, and home care costs of Ireland’s ageing population. The Fund will receive €4 billion on the dissolution of the current National Reserve Fund and 0.8 per cent of GDP annually from 2024 to 2035, with the potential to have accumulated €100 billion by 2035. The Infrastructure, Climate, and Nature Fund aims to address Ireland’s past record of halting capital spending during economic downturns. The Fund will also support Climate action with €3 billion earmarked for capital projects to help keep Ireland on track in meeting carbon budgets. The National Reserve Fund will make a €2 billion contribution in 2024 and thereafter, €2 billion will be invested each year until the Infrastructure, Climate, and Nature Fund reaches €14 billion.
Are big Budgets the future?
The €14 billion package for Budget 2024 mirrors Budget 2023′s €11 billion package. However, we cannot read too much into this trend considering our experience in recent years of unforeseen global events. In Budget 2024, the Government is striving to make the best use of the resources available now to alleviate the impact of inflation on households while also sustaining an environment for businesses to grow. Of course, there is always more a Government can do in terms of support. However, if Ireland can manage to achieve the funding targets underpinning the two new State funds announced under Budget 2024, the country will be in a good position to respond to future unforeseen events.
For more tax insights for you and your business, visit kpmg.ie/budget24