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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