What can we expect from Budget 2025?
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As most of us hid under our umbrellas over the summer months, the Tax Strategy Group (TSG) was busy discussing tax rates and policy options.
The TSG, established in the early 1990s, is chaired by the Department of Finance and includes senior officials and political advisers from various civil service departments and offices.
Each year, officials from the Department of Finance prepare papers outlining a range of tax policy options for consideration by Government. The TSG itself does not make decisions; rather, the papers produced are intended to present options and issues for consideration assisting the Budgetary process. For matters related to PRSI and social welfare, the Department of Social Protection also prepares relevant papers for the group.
Now that the holidays are fading into distant memories and Budget 2025 is looming large, it’s interesting to see what their July meeting produced, which may give a clue as to what may be in the upcoming Budget.
First on the agenda, income tax — a topic that never fails to spice up budget season. The TSG took stock of the usual suspects: tax yields, distribution of income tax, and everyone’s favourite — Universal Social Charge (USC).
On top of that, they touched on the Incapacitated Child Tax Credit and the tax relief given to sporting bodies and philanthropists. For anyone feeling particularly generous or sporty, that could be good news.
They also referenced pensions tax provisions. Whilst not specifically highlighted, we would welcome a number of measures. Those listed hereunder involve the application of simple common sense:
- Remove the 1% Life Assurance Premium Levy from 1st January 2025.
- Amend the Standard Fund Threshold (SFT) system in a number of respects: to increase the SFT in 2025 to at least €2,650,000 and Index Link same.
- Link the Life Assurance Exit Tax (LAET) rate to the Capital Gains Tax rate of 33%, to ensure consistency and equality in the taxation of returns from investment in risk assets such as Educational Plans, Investment Savings Plans and Investment Bonds.
- Proposed Exit Tax Incentive Scheme for Responsible Investment Products.
- Harmonisation of the definition of ill health for access to a PRSA before age 60, in line with that used for Occupational Pension Schemes.
- Provide the ARF option in DC schemes where a lump sum is taken under the salary/service option, for the balance of funds post the lump sum.
- Allow PRSAs to replicate, as far as possible, the funding and benefit potential of the retail Master Trust for proprietary directors.
Capital Gains Tax, Capital Acquisitions Tax (CAT), Stamp Duty, and the Residential Zoned Land Tax got their own moment in the sun. There was even a nod to the Tax Appeals Commission, which isn’t exactly a headline topic. However, there is enough here to keep property owners, investors and inheritors on edge.
The TSG didn’t highlight any major surprises, but October might still bring some tweaks that could impact how people invest or pass on wealth. In the Capital Acquisitions Tax (CAT-Inheritance Tax) space, we would like to see the family home issue addressed. Whilst house prices have increased dramatically, the inheritance tax thresholds have reduced.
CAT has increased by 65% from a tax rate of 20% to 33%, while at the same time the parent child tax free threshold (the value a parent can pass to a child, tax free) has decreased by almost 36% from €521,208 to €335,000. Latest figures from the Central Statistics Office state the average cost of a home in May 2024 was (coincidentally) €335,000. Less than a three-bed semi, in many counties. Decreasing the rate of tax by 1% would cost €20m to the Exchequer. Increasing the threshold to €400,000 would cost €52 million in a year.
In acknowledgment of the pressures many households are facing, the TSG gave a thorough look at social welfare changes and what more can be done to ease the burden of rising costs. Expect some heated debates come October on whether enough is being done to help people keep pace with inflation. Budget 2025 could see more tweaks to existing supports and possibly even new measures aimed at easing those dreaded monthly bills. Indeed, the Taoiseach, Tánaiste, Minister for Finance, and the Public Expenditure minister have all referenced that the bulk of the €1.4 billion to play with when it comes tax cuts for next year will likely be spent on indexing income tax credits and bands to ensure workers' earnings rise without such increases going in tax.
It’s hard to talk about tax without mentioning the colossal cash cow that is corporation tax. Despite international noise about tax reform, the TSG continues to monitor trends and prepare for any surprises from the EU. Given the eye-watering receipts in recent years, this area remains a focus, especially since any unexpected shifts could have a serious impact on total revenues.
The TSG spent some time reviewing tax schemes aimed at supporting small and medium enterprises (SMEs), which are the backbone of our economy. In recent years, these schemes have seen various tweaks, and the group is mulling over whether further adjustments are needed. October’s budget may deliver a bit of TLC for homegrown businesses looking to invest and expand.
For those in the agriculture sector, the TSG examined all the supports currently on offer — exemptions, deferrals, repayments, etc. This is an area where tax policy gets particularly creative, with measures affecting everything from income tax to excise duty. Expect some careful balancing here to keep the farming community content while not breaking the budget.
VAT remains a crucial revenue generator, and the TSG took a close look at current rates, with some musings about ongoing EU discussions on VAT in the digital age. There’s also a wide menu of policy options on the table that could spice things up in October. Whether that means higher VAT on some items or reliefs on others, we’ll have to wait and see.
In the realm of excise, the TSG didn’t miss the chance to touch on the usual suspects: alcohol, sugary drinks, tobacco, and betting. With Budget 2025 around the corner, there’s always speculation about whether these “sin taxes” will rise further, making a pint, a packet of cigarettes, or a cheeky bet that little bit more expensive.
Rounding out the discussions was the ever-present topic of energy taxes and carbon measures. With EU regulations influencing our policy, the TSG examined everything from motor vehicle taxes to carbon tax and even revisited the often-controversial car parking levy. Given the ongoing climate agenda, this is one area where we might see some significant moves in October.
So, what is the verdict after all this summer strategising? While the TSG’s papers are not exactly a crystal ball, they do provide a sneak peek into the discussions that will shape Budget 2025. As always, there will be winners and losers when the final decisions are made.
So, whether you are hoping for a tax break, worried about price hikes, or just waiting to see how it all shakes out, one thing’s for sure: this October’s Budget will bring plenty of fireworks — long after the summer sun has set.