Budget 2024 introduced measures for individuals and businesses facing another winter of high costs. Brian Brennan discusses this year’s package and the future-focused benefits of the new State funds
The tax package of €1.3 billion introduced under Budget 2024 cast a wide net across Irish society, from income tax breaks for individuals and mortgage interest relief for homeowners to 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, including extending the bank levy to raise €200 million.
A substantial tax package
The tax packages for Budget 2024 and Budget 2023 were substantially larger than the tax measures introduced in the two previous pandemic Budgets.
While substantial budgetary packages are becoming the norm, so are the inflationary challenges facing businesses and individuals.
Minister for Finance Michael 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 high energy and living costs.
Given Ireland’s exchequer surplus for 2022 and forecasts of short- to medium-term surpluses on the back of strong tax yields, it is difficult to imagine the Government failing to deliver a package of this magnitude.
Business measures
Companies in Ireland, both multinational and indigenous, will welcome enhancements to the research and development (R&D) tax credit.
The rate increase from 25 percent to 30 percent will maintain the net value of the existing credit for businesses subject to the new 15 percent minimum effective tax rate resulting from the Base Erosion and Profit Shifting (BEPS) Pillar Two reform package.
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 (CGT) 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 percent – or 18 precent, 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 details of how the new 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 was 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.
Regarding revenue-raising measures, Minister for Public Expenditure and Reform Paschal Donohoe announced an increase of 0.1 percent to all PRSI contribution rates from 1 October 2024.
While the Minister described this as a “modest” increase, it paves the way for further increases in the years ahead to fund the pension system for our ageing population.
Wise use of resources
While tax breaks and supports dominated media coverage of Budget 2024, it is essential 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 the healthcare, pension and home care costs of Ireland’s ageing population.
It will receive €4 billion on the dissolution of the current National Reserve Fund and 0.8 percent 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 record of halting capital spending during economic downturns. This fund will also support climate action with €3 billion earmarked for capital projects to help keep Ireland on track to meet carbon budgets.
The National Reserve Fund will make a €2 billion contribution in 2024. Additionally, €2 billion will be invested yearly until the Infrastructure, Climate and Nature Fund reaches €14 billion.
Future budgets
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 in which businesses can grow.
Of course, there is always more a government can do regarding support. However, if Ireland can 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 unforeseen future events.
Brian Brennan is a tax partner at KPMG
You can hear more about Budget 2024 on the Accountancy Ireland podcast, available on Spotify, Apple Podcasts and at accountancyireland.ie.
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