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Budget 2025: What we know so far - from tax cuts to pension increases and free schoolbooks

This year’s measures will be framed around tax and spending package of €8.3bn, with cost-of-living bundle worth roughly €1.5bn

Budget
Taxation measures have been flagged amounting to €1.4bn. Illustration: Paul Scott
Jennifer Bray
Cormac McQuinn
Thu Sept 26 2024 - 11:38

It is crunch time in the build up to Budget 2025 where Minister for Finance Jack Chambers will deliver his first budget. While he’ll be dealing with tax measures, Minister for Public Expenditure Paschal Donohoe is continuing his meetings with ministers to finalise the spending measures that will be announced next Tuesday. There is some €6.9 billion for new spending in 2025. However, €5.1 billion of this is needed to cover existing levels of services in areas like health and education as well as the cost of the public sector pay deal. That leaves €1.8 billion for brand new spending across 18 Government departments, so expect some ministers to be disappointed with what they end up with. There is expected to be a cost-of-living bundle of about €1.5 billion. The overall budget packages is set to be around €10 billion. Here’s what we know in advance of what is set to be an intensive five days of negotiations.

Taxation

Budget tax measures amounting to €1.4 billion were flagged by the Government in the summer economic statement earlier this year.

There is a three-pronged approach for personal taxation: increasing the level at which the higher rate of tax kicks in, boosting income tax credits and introducing further cuts to the Universal Social Charge (USC). In the last budget, the standard rate band – the level at which earners start to pay the higher rate of income tax – went up by €2,000 to €42,000. The main tax credits were increased by €100 and the 4.5 per cent rate of USC was reduced to 4 per cent.

A further €2,000 increase to the standard rate tax band to €44,000 is seen as the likely change in that area to be announced next week along with an increase in the tax credits, and potentially another 0.5 per cent cut to the USC rate to 3.5 per cent.

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The income tax and USC measures alone could hoover up half of the €1.4 billion Mr Chambers has for tax measures.

Both Fine Gael and Fianna Fáil have signalled that they want cuts to inheritance tax.

The €335,000 tax-free threshold which applies to children inheriting from parents could rise to €400,000, which would cost €52 million.

Tenants look set to get an extra €250 in the renter’s tax credit to cover both 2024 and 2025. It would mean they could claim up to €1,000 for both years.

Mr Chambers is also understood to be considering extending the one-year mortgage interest relief scheme introduced last year which would cost about €125 million.

All in all, between tax changes and cost-of-living measures, Mr Chambers has said workers will benefit by about €1,000 in this budget.

Meanwhile, as The Irish Times reported last week, Government is expected to scrap plans to impose a capital-gains tax (CGT) liability on the transfer of family businesses worth more than €10 million.

Separately, employers may benefit from a change in the entry point for the higher rate of employer PRSI to soften the blow of expected minimum wage hikes coming on budget day.

[ Budget 2025: Taxpayers in line for significant income tax and USC cuts ]

Welfare

Minister for Social Protection Heather Humphreys has argued for targeted increases in welfare supports. Photograph: Dara Mac Dónaill/The Irish Times

Minister for Social Protection Heather Humphreys has said she would like to see welfare increases targeted at those who need them most – pensioners, carers and the disabled. She is believed to be seeking €15 increases to the State pension, carers allowance and disability payments, with perhaps a lower increase for jobseekers payments. There has been some resistance to the different levels of increases for different welfare recipients from some in Fianna Fáil and the Green Party. Regardless, increases are on the table, what remains to be seen are the precise levels.

An eye-catching welfare measure suggested by the Green Party is a special once-off child benefit payment worth €560 which would be paid out the first month of a child’s birth. It doesn’t seem to have a hefty pricetag (somewhere around €20 million) and hasn’t been shot down by the other Coalition parties.

In terms of the fuel allowance, Ms Humphreys has suggested she wants to extend its availability to those over 66. At present, it is available to those over 70.

Cost of living

Last year’s cost-of living package was worth €2.3 billion – this year’s package will be smaller in scale, perhaps around €1.5 billion, which is still significant. Whatever the total scale of the so-called once-off measures it is expected that hard-pressed households will see money in their pockets before Christmas.

Last year, there were three energy credits worth €150 each. This year, it is likely to be less, though they could still range from €250-€300. Elsewhere, there will be “a mix” of lump sum payments and a possible double payment of the child benefit. Lump sum payments made in the last budget included a €300 fuel allowance payment, a €400 disability grant and a €400 lump-sum Working Family Payment – so expect several of these to return. Another welfare Christmas bonus is also likely. The Green Party has proposed extending free public transport to children under nine (currently it only covers the under-fives) both to save families money and reduce emissions by encouraging the sue of public transport. Again, at a cost of €8 million it is not massive money should the proposal end up in the budget.

VAT battles

The income tax and USC burden on the Irish household averages out at €19,000 per household, while the combined impact of VAT and excise averages over €15,500 per household. Decisions around VAT do have a significant bearing on people’s pockets. It is likely that the reduced VAT rate on electricity and gas will be extended throughout the winter period. It is an expensive measure but has a big impact on households – saving between €40-€50 on an average annual electricity bill or a bit more for dual fuel users.

Separately, the Government last year ended a special 9 per cent VAT rate for hospitality businesses, increasing the tax to 13.5 per cent. In recent weeks, Ministers have said privately that there will be no change. Last week, Minister for Enterprise Peter Burke said he would not rule out a return to the reduced rate of VAT for a certain section of hospitality but that was a collective decision for Government. Business groups have been calling for a reduced rate of VAT for resurants and cafes, as distinct from hospitality in general, to be reinstated.

Childcare

A further 25 per cent cut in the average cost of childcare has kicked in and there appears to be no talk of increasing the hourly subsidies or cutting costs further. The focus instead looks to be on core funding, Deis funding and disability funding. Green Party leader Roderic O’Gorman has said there will be a €1.2 billion investment in childcare as part of Budget 2025.

Popular and unpopular measures

An extension of free schoolbooks to Leaving Cert level students is firmly on the cards, several sources have confirmed. Minister for Higher Education Patrick O’Donovan has been pushing for a further cut in third level fees, perhaps in the order of €500. The 20 per cent cut to the cost of public transport will be extended for another year. Funding for at least 1,500 special needs assistants being sought by Minister for Education Norma Foley could ease pressure on the special education system. A further hike in the price of cigarettes has not been ruled out and a tax on vapes could begin at some stage next year once the technicalities are worked through. There was a Government spat around delaying the planned introduction to the Residential Zoned Land Tax (RZLT). Efforts are being made to find a way of bringing in the land-hoarding tax while exempting farmers that genuinely use residential zoned land for farming.