Posted by Budget 2025 Priorities:
- Ireland’s economic model faces a new global context. Despite recent turbulence, the economy is stronger, but state-driven competition, geopolitical tensions, and reduced trade openness challenge small countries like Ireland. Competing with larger countries on subsidies is impossible, so focusing on our strengths is crucial for maintaining high living standards.
- To ensure competitiveness, we must avoid past mistakes and address high costs. The National Competitiveness and Productivity Council highlights our rising costs. Budget 2025 should introduce an Employer PRSI rebate, simplify the corporate tax regime, and re-establish the ‘Better Regulation Unit’ to ease business burdens.
- Balancing low carbon goals with reduced energy costs is vital. Budget 2025 should introduce measures like a low carbon super deduction, expand the capital allowance regime, and ringfence €400 million for a Carbon Contracts for Difference scheme, to be allocated over a number of years.
- Investing in skills is essential. With a €2 billion surplus in the National Training Fund (NTF) by 2025, we should use it to upskill the workforce. Treating NTF spending like other specific purpose funds would support this.
- We must address underinvestment in infrastructure and public goods. Budget 2025 should ensure adequate staffing in regulatory bodies, invest €220 million in care sectors, build affordable housing, and introduce a €200 million National Training Voucher scheme.
- We need to future-proof our business model, we need a renewed focus on productivity, growth, and innovation. Budget 2025 should allocate €300 million for education and training, improve qualification recognition for non-EEA nationals, maintain retirement relief for family businesses, and invest €50 million in research and innovation, as well as €160 million in cybersecurity and digital capabilities.
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Budget 2025: Maintaining Ireland’s competitive edge
Sep 19, 2024
Budget 2025 needs to tackle rising business costs, tax complexity and housing shortages to enhance Ireland’s global competitiveness and support domestic and foreign enterprises, writes Tom Woods
On 1 October, Budget 2025 should prioritise addressing key competitive challenges in the Irish economy, such as attracting, supporting and scaling Irish and foreign businesses, as well as tackling rising employment costs, international talent competition, and affordable housing availability.
Tax simplification
Ireland is facing a rapidly changing global tax environment, and the outcome of the US elections could significantly impact this environment and Ireland’s attractiveness as an investment location.
US tax measures designed to lower the US corporate tax rate to one more comparable with OECD peers and to protect the US tax base are scheduled to expire at the end of 2025.
Despite this uncertainty, Ireland has a unique chance to present itself as a stable and secure destination for FDI. It is vital the opportunity is taken in Budget 2025 to introduce measures that will strengthen Ireland’s competitive edge and attractiveness for inward investment.
Ireland needs a broad and flexible participation regime that will support it as an international holding company location. We have called for introducing a participation exemption for foreign dividends to complement the participation exemption in place for capital gains. A branch exemption should also be introduced.
Simplification of the tax code needs to be a priority in Budget 2025 to support enterprise and entrepreneurship. According to the KPMG Enterprise Barometer 2024, six in ten domestic businesses and entrepreneurs are concerned about the administrative complexity associated with the Irish tax system, particularly for smaller enterprises and entrepreneurs.
Our pre-budget submission calls for the establishment of an Office for Tax Simplification to review the tax code, remove duplication, and simplify the system. By doing so, we can drive reform of overly complex tax rules that are adding to the cost of doing business and compromising competitiveness.
This is particularly important now that the 12.5 percent corporation tax rate is less of a competitive advantage.
SME investment
SMEs employ more than 1.2 million people and are critical to our economic success, so they need access to capital and talent to develop and grow their businesses.
Enhancements to the Key Employee Engagement Programme (KEEP) and the Special Assignee Relief Programme (SARP), as well as introducing a super deduction for payroll costs of highly skilled technology workers would help level the playing field for SMEs competing with multinational corporations in a tight labour market.
Budget 2025 could also incentivise investment in SMEs by simplifying the Employment Investment Incentive Scheme (EIIS) and enhancing Capital Gains Tax (CGT) Entrepreneur’s Relief.
It is also critical to reverse the changes made to the CGT Retirement Relief in the last Finance Act. The availability of CGT retirement relief is vital to the development of multi-generational family-owned businesses and farms. These businesses and farms are the bedrock of the Irish economy, employing millions. Last year’s changes will operate as a barrier to the transfer of Irish businesses and farms to the next generation.
Employment cost reduction
Ireland’s high cost of employment has become a real concern for domestic businesses and foreign investors. Budget 2025 should introduce measures to reduce the cost of employment. Ireland needs a personal tax regime that attracts and retains skilled individuals. This is important for Irish and foreign-owned companies assessing Ireland as an investment location.
The entry point to Ireland’s marginal income tax rate is uncompetitive compared to many other jurisdictions, making it difficult to attract talent and highly skilled workers. We recommend raising the point at which the marginal rate applies to €50,000.
We also recommend the introduction of an earnings cap of €75,000 on Employee PRSI and €100,000 on Employer PRSI, similar to social security caps in other countries, increasing workers’ take-home pay, helping employers manage employment costs and supporting businesses growing and developing talent.
Housing crisis
The housing crisis is adversely impacting Ireland’s attractiveness for investment.
According to new data from the Central Statistics Office, 69,000 people emigrated from the Republic of Ireland in the 12 months to April 2024, the highest level of emigration since 2015.
There were also significant inflows, but this is a missed opportunity to keep talented people in the Irish labour market.
Several budgetary measures could be introduced to increase the housing supply, including incentivising employers to build and provide residential accommodation to employees with a corresponding benefit-in-kind (BIK) exemption for employees earning less than €50,000.
Reintroducing a targeted and controlled form of Section 23 relief could also encourage the conversion of properties above retail units to residential use and encourage individuals to finance the development of new residential units for letting.
Green technology
Our ambitious climate goals will undoubtedly present challenges and opportunities for individuals, communities, and businesses. Tax policy could be used as an effective tool to encourage innovation in green technologies to help us meet these targets.
The Government has several challenges to address, but strong exchequer returns should put the Government in a good position to deliver on a budgetary package of €1.8 billion in additional spending and €1.4 billion in tax measures as set out in the Summer Economic Statement.
Tom Woods is head of tax at KPMG in Ireland
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Budget 2025 Financial Advice Donegal
by Pascal Curran | Sep 17, 2024 | News, Back to Blog
Budget 2025 – What Might Be on the Horizon?
As we approach 2025, anticipation around the upcoming budget is building, and there’s a lot of speculation about what the government might focus on. In a world still recovering from post-pandemic shifts, economic challenges, and fast-paced technological change, the Budget 2025 is likely to aim at solidifying growth while addressing emerging challenges.
Here’s a breakdown of key areas the Budget 2025 might address:
1. Green Energy and Sustainability
With climate change becoming a central global issue, governments around the world have pledged aggressive action toward decarbonization and environmental sustainability. Budget 2025 could see the introduction of more significant green energy subsidies, increased investment in clean energy infrastructure, and support for businesses to transition to sustainable practices.
Expectations are high for expanded incentives for electric vehicles (EVs) and renewable energy projects, as well as stricter regulations and carbon taxes to meet emissions targets. This may also extend to tax benefits for individuals making eco-friendly choices, such as home solar installations or purchasing EVs.
2. AI and Digital Innovation
2025 is shaping up to be the year artificial intelligence (AI) and other digital technologies hit the mainstream in business, healthcare, and even education. The government may allocate a considerable portion of the budget to advance AI research and development, ensuring the country doesn’t fall behind in the global tech race.
To prepare for the future, investments in digital literacy and upskilling initiatives could be ramped up. The integration of AI into various sectors—particularly healthcare, agriculture, and manufacturing—might receive special incentives, leading to productivity gains. Cybersecurity, a growing concern with increased digitalisation, could also receive focused funding.
3. Housing and Affordability
Housing affordability continues to be a major concern for many of us, especially in urban areas where prices have remained high. The Budget 2025 might introduce new policies to tackle housing affordability, such as tax credits for first-time homebuyers, expanded social housing initiatives, and incentives for developers to create affordable housing units.
There might also be policies to address the growing rent crisis, with a focus on providing relief to low- and middle-income households and efforts to stabilize the rental market. Some speculate that reforms in zoning laws and urban development could also be on the table, making it easier to expand housing stock.
4. Healthcare and Aging Population
As populations age, healthcare systems face increasing pressure to manage chronic diseases, long-term care, and growing medical costs. Budget 2025 could introduce significant reforms to address these issues. We may see increased investment in elderly care facilities, expanded healthcare services, and more subsidies for essential medical services.
There’s also the possibility of further funding for telemedicine and digital healthcare services, which have seen massive growth since the pandemic. More funds might be allocated to support mental health programs and access to health services for vulnerable populations.
5. Taxation and Fiscal Deficit
One of the biggest questions surrounding Budget 2025 is how the government will handle taxation. As global economic conditions remain volatile, there’s speculation about possible adjustments to the tax brackets. There may be a greater push toward wealth taxes, or at least, taxes on large corporations, particularly in the tech and digital services sectors.
Balancing the fiscal deficit will also be a priority. After years of emergency spending in response to global crises, reducing the national debt could be a central theme in this budget. We may see cuts to certain subsidies or social programs as the government tries to rein in spending without hindering economic recovery.
6. Education and Workforce Development
With an increasing focus on AI, automation, and green energy, workforce development will likely be a key priority. We could see significant investments in education and vocational training, focusing on equipping young professionals and those displaced by automation with the skills needed for future jobs. Expect more government-sponsored initiatives on STEM education and grants for research institutions to foster innovation.
Additionally, initiatives to reduce the student debt burden may be introduced, making education more accessible to all citizens.
7. Defence and National Security
In light of evolving geopolitical challenges and the growing importance of cybersecurity, Budget 2025 may see a notable increase in defence spending. With a renewed emphasis on protecting critical infrastructure from cyberattacks and ensuring the nation’s cybersecurity preparedness, funding for both digital and physical defence measures could be prioritized.
There’s also likely to be a focus on boosting partnerships with international allies to ensure the country remains secure in an increasingly interconnected world.
Our Thoughts on Taxation in Budget 2025 – What Might Be in Store?
As the announcement for Budget 2025 approaches, the taxation framework will undoubtedly be one of the most closely watched aspects. With governments facing the dual challenge of fostering economic growth while managing fiscal deficits, taxation reforms could be a key focus area. Here’s a breakdown of what we might expect in terms of tax policy in the upcoming budget:
1. Wealth and Corporate Taxes – A Focus on Big Business?
There’s increasing speculation that wealth taxes and corporate taxes may play a prominent role in Budget 2025. The global trend towards taxing the wealthiest individuals and large corporations is gaining momentum, especially as governments look for new sources of revenue to balance growing expenditures on healthcare, infrastructure, and social services.
Large tech firms, e-commerce giants, and other digital service providers—many of whom have seen their profits soar over the past decade—could face higher tax rates. This would likely be framed as an effort to ensure that companies benefiting from globalised markets are contributing a fair share to national economies. It could also include the introduction of or an increase in digital services taxes, targeting revenue generated through online platforms.
Example: the recent European court decision against Apple. E.U. Court Rules Against Apple in $14 Billion Irish Tax Bill Case | TIME
For high-net-worth individuals, wealth taxes may be reformed or expanded to tap into accumulated wealth. This could include higher capital gains taxes, inheritance taxes, or additional levies on luxury assets like property and art. Policymakers might justify these changes by emphasising income inequality and the need for a fairer distribution of tax burdens.
2. Personal Income Tax Adjustments
On the personal tax side, Budget 2025 could introduce revisions to income tax brackets. There is a possibility that middle-class taxpayers may receive relief, either through expanded tax deductions, credits, or adjustments to the thresholds for higher tax brackets. This would be aimed at stimulating spending and easing the financial burden on households grappling with inflationary pressures.
However, higher-income individuals may see an increase in tax rates or reduced access to deductions. Policymakers might be looking to offset the revenue lost from providing middle-class relief by increasing taxes on the upper-income segments.
3. Environmental and Carbon Taxes
With climate change taking centre stage, whether you agree or not, expect a strong push for environmentally focused taxes. Carbon pricing is likely to be a key tool for encouraging businesses to reduce their carbon footprints. Budget 2025 could see higher carbon taxes applied to industries that contribute heavily to emissions, such as energy, manufacturing, and transportation.
For individuals, this could manifest in taxes on non-eco-friendly consumer goods, that my diesel car, or higher fuel taxes. At the same time, there might be tax incentives or rebates for environmentally conscious actions, such as buying electric vehicles, installing solar panels, or using energy-efficient appliances.
4. Value-Added Tax (VAT) and Consumption Taxes
To generate additional revenue, the government might look to consumption taxes, particularly increasing or adjusting VAT (Value-Added Tax) rates. A VAT hike, though politically sensitive, would be a way to bolster revenue streams without targeting income. However, governments could soften the blow by exempting essential goods like food and medicines from higher VAT rates or by offering VAT refunds to low-income families.
Alternatively, “sin taxes” on alcohol, tobacco, and sugary drinks may also be increased to both raise funds and promote healthier behaviours.
5. Digital and Cryptocurrency Taxes
Given the rise of the digital economy, we might also see new or expanded taxes on cryptocurrencies and digital assets. Cryptocurrency trading has grown rapidly and regulating its tax treatment could be a way for the government to capture revenue from this burgeoning sector. Expect clearer guidelines on taxing capital gains from crypto assets, as well as potential levies on digital transactions.
Governments could also look at taxing non-fungible tokens (NFTs) or other digital assets that are becoming increasingly popular. As these markets grow, establishing a tax framework around them will become critical.
6. Tax Evasion and Loopholes
A perennial issue in every budget is the tightening of tax loopholes and crackdowns on tax evasion. The government may introduce stricter reporting requirements for offshore assets or earnings to curb the flow of money to tax havens. Additionally, closing corporate loopholes that allow businesses to shift profits to low-tax jurisdictions could generate significant revenue.
7. Stimulating Innovation through Tax Credits
While there may be some tightening, Budget 2025 could also offer tax credits to spur innovation, especially in sectors like technology, healthcare, and green energy. R&D tax credits for startups and innovative firms could be expanded to encourage homegrown development and global competitiveness.
This could also extend to tax breaks for businesses investing in upskilling and workforce development, particularly in industries facing labour shortages due to automation and digitalisation.
Conclusion – Balancing Revenue and Fairness
Taxation in Budget 2025 will likely be a balancing act between raising necessary revenue and promoting fairness. As governments continue to invest in critical areas like healthcare, climate action, and digital infrastructure, they’ll need to ensure that the tax system is equitable and efficient.
The overall direction will depend on how the government balances tax relief for middle- and lower-income groups with the need to increase contributions from wealthy individuals and large corporations. Carbon taxes, digital economy levies, and innovation-driven incentives will be crucial tools in shaping the economy for the future.
With the pressure to address both long-term fiscal deficits and immediate social needs, Budget 2025’s taxation policies could usher in significant changes, marking a new phase of economic and social development.
While these are just some of the possibilities for Budget 2025, the actual announcement is sure to contain surprises as the government balances immediate concerns with long-term goals. It’s clear, however, that green energy, digital transformation, housing, and fiscal discipline will be key pillars shaping the future of the economy.
As the date draws nearer, we’ll continue to speculate and prepare for what will undoubtedly be a critical moment for the nation’s future.
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Our Thoughts on Pension Changes in Budget 2025 – What Could We See?
Pensions have become a key focus of the 2025 budgetary discussions. With aging populations, longer life expectancies, and changing workforce dynamics, governments worldwide are under pressure to reform pension systems.
Budget 2025 is expected to address these challenges, potentially introducing significant changes to ensure that pensions remain sustainable and equitable.
Here’s some thoughts on what pension reforms might look like in the upcoming budget:
1. Raising the Retirement Age
One of the most anticipated changes is a potential increase in the retirement age. As people live longer and remain healthier into old age, many governments are considering extending the working age to alleviate the financial strain on pension systems. Budget 2025 could see a gradual increase in the retirement age, potentially reaching 68 or 70 in the coming decades.
The rationale behind this is that longer lifespans are increasing the number of years people draw from pensions, while the number of working-age contributors is shrinking. Raising the retirement age would reduce the pressure on public pension funds and allow individuals more time to contribute to their pensions.
However, this change may face opposition from those in physically demanding jobs, who might struggle to work into their late 60s. The government could address this by introducing flexible retirement options or allowing early retirement for certain sectors.
2. Adjustments to State Pension Contributions
Budget 2025 may also include adjustments to the way state pensions are funded. One possibility is an increase in the pension contribution rates for both employees and employers. As the cost of pensions grows, governments may look to raise contribution levels to ensure the system remains adequately funded.
To avoid placing too much financial strain on lower-income workers, these increases could be staggered based on income, with higher earners contributing more. Another approach could be to introduce or expand government matching schemes, where the state matches a portion of individual contributions to incentivize saving for retirement.
3. Indexation and Pension Increases
Inflation has been a key concern in recent years, eroding the real value of pensions. In response, Budget 2025 may introduce measures to better protect pensions from inflationary pressures. One likely move could be the indexing of pensions to inflation or wage growth, ensuring that retirees’ purchasing power is preserved as the cost of living rises.
However, balancing pension increases with fiscal responsibility will be tricky. While retirees and pension advocates will push for generous adjustments, the government will need to weigh this against rising deficits and other spending priorities. A compromise might involve smaller, more gradual increases or targeted pension boosts for the most vulnerable, such as low-income retirees.
4. Expanding Private Pension Incentives
Private pensions are likely to become more central to retirement planning, as public systems face increasing strain. Budget 2025 could see the introduction of new incentives for individuals to invest in private pensions, such as tax breaks or employer-matching schemes.
The impending introduction of Auto-enrolment in 2025, which automatically signs employees up for workplace pensions with the option to opt out, this has already been successful in some countries.
The government could also explore new ways to encourage self-employed individuals to contribute to private pension plans. Currently, many self-employed workers are under-prepared for retirement, and addressing this gap could be a focus in 2025.
5. Targeting Inequalities in Pension Systems
Another potential area of reform is addressing inequalities within the pension system. Women, for example, often have smaller pension pots due to career breaks for childcare or working in lower-paid, part-time roles. Budget 2025 could introduce policies aimed at closing the gender pension gap, such as credits for caregivers, which count towards their pension contributions.
6. Encouraging Later Life Work and Flexibility
To address both the financial pressures on pension systems and the desire of older workers to stay active, Budget 2025 could promote more flexible work arrangements for seniors. This could involve tax incentives for businesses that hire older workers, or reduced taxes on income earned by individuals over a certain age who choose to continue working part-time.
This approach would not only ease the financial burden on the pension system but also allow older workers to remain engaged in the workforce without the pressure of a full-time commitment. It could also foster a smoother transition from full employment to retirement, helping workers maintain their financial security longer.
7. Reforms to Public Sector Pensions
Public sector pensions are often seen as more generous than those in the private sector, leading to calls for reforms to bring them more in line with private-sector schemes. In Budget 2025, we could see adjustments to public sector pension benefits, such as increasing employee contributions, raising the retirement age for public employees, or switching to a career-average earnings system instead of final salary pensions.
Reforming public sector pensions will likely be politically contentious, but governments may argue that it’s necessary to ensure long-term sustainability and fairness across the workforce. Good luck on this one. ..
8. Means-Testing for Pension Benefits
As fiscal pressures mount, there may be discussions around means-testing certain pension benefits. This could mean reducing or eliminating benefits for higher-income retirees, reallocating resources to those in greater need. While this would be a controversial move, it could be a way for governments to maintain pension generosity for lower-income retirees without overextending the budget.
Conclusion: A Balancing Act for Sustainable Pensions
The likely changes to pensions in Budget 2025 reflect the broader challenges facing governments today: how to sustain a fair and functional pension system in the face of longer life expectancies, demographic shifts, and economic uncertainties.
Key reforms might include raising the retirement age, adjusting contributions, and incentivising private savings, all while addressing inequalities and ensuring that pensions keep pace with inflation. The government will have to strike a careful balance between ensuring fiscal sustainability and maintaining adequate support for retirees.
A lot in riding on the success of the Auto enrolment role out and take up over the long term.
As populations age and expectations around retirement evolve, the pension system will need to adapt, and Budget 2025 could mark a pivotal moment in that transformation.
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Remember: A financial advisor can help you craft a personalised investment strategy tailored to your unique circumstances.
Book a Budget 2025 appointment today with Pascal
Disclaimer: This blog is for informational purposes only and should not be considered financial advice. Please consult with a professional financial advisor before making any investment decisions.
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re-Budget Submission 2025: Supporting the Competitiveness of our Economy
29th August 2024
Today we published our Pre-Budget Submission 2025 which is informed by our experience in servicing our domestic client base, the sectoral insights of our research analysts and our understanding of the perspectives of institutional investors (equity and debt) on the Irish economy.
Our submission covers four broad areas:
- Addressing infrastructure constraints to sustainable growth;
- Reviving Euronext Dublin to support Irish enterprise;
- Enabling the diversification and growth of Irish wealth;
- Sustaining equity in capital taxation.
The combined effect of the proposals presented would, we believe, support the competitiveness of our economy and, by extension, the financial wellbeing of Irish society.
Who Watches the Watchers? 