BUDGET 2025 – ECONOMIC & FISCAL ASPECTS
The Government’s financial position in framing the budget was exceptionally strong.
A surplus of €25 billion is projected for 2024.
At its disposal the Government had €14.1 billion from the Apple Tax ruling;
€3.1 billion from the sale of AIB shares; and a €1.5 billion surplus in the National Training Fund.
Read all the details below. Or watch the 3 minute 46 seconds video.
In framing Budget 2025, some key priorities were evident:
• Impact of elevated inflation and higher interest rates on the cost of living.
- The need to relieve pressure on squeezed middle income earners.
- The increased cost of doing business for small businesses.
- The ongoing pressures on the housing market for both house purchasers and renters.
- The longer-term imperative of investment in infrastructure.
- A general election that must be held before 22nd March 2025.
As stated in the Summer Economic Statement, the core package in Budget 2025 is €8.3 billion, comprising €1.4 billion in taxation measures (personal income tax measures €1.6 billion) and core expenditure of just under €6.9 billion.
A cost-of-living package of €2.2 billion is in addition to this, giving a total budget package of €10.5 billion.
The Government has laid out a longer-term strategy for investment expenditure.
€3 billion is being made available for infrastructure spending, in water infrastructure (€1 bln), housing (€1.25 bln), and electricity grid infrastructure (€750 mln).
This money will be dispersed through the Land Development Agency (LDA); Eirgrid and ESB; and Uisce Eireann. In September, €4.3 billion was transferred into the Future Ireland Fund and €2 billion into the Infrastructure, Climate and Nature Fund.
A further €4.1 billion will be transferred into the Future Ireland Fund next year and almost €2 billion to the Infrastructure, Climate and Nature Fund. By the end of 2025, more than €16 billion will have been transferred into both funds.
Budget 2025 is an expansionary package with a significant injection of fiscal stimulus into the economy. The overall package will support economic activity in 2024, particularly consumer spending.
BUDGET 2025 Main Points
Pensions
- The auto-enrolment pension scheme will begin on 30th September 2025. This scheme will mean that around 800,000 workers will automatically be enrolled into a private pension scheme, in addition to their state pension.
People who do not have a pension scheme; are aged between 23 and 60; and who earn more than €20,000 will be automatically enrolled. People outside of this range will not be automatically enrolled but will be able to opt in.
Under the scheme, employees will contribute 1.5% of their gross salary during the first three years of paying in. This will rise to 3% from the third year on, 4.5% from year six on, topping out at 6% from year 10 on.
The state will contribute €1 for every €3 contributed by the participant, and for every €3 that an employee contributes, the employer will have to contribute €3.
- Finance Bill 2024 will provide for the taxation of the Automatic Enrolment Retirement Savings Scheme (referred to as AE). The tax treatment aligns as much as possible with that of Personal Retirement Savings Accounts (PRSAs), other than for employee contributions. Employer contributions are tax relieved, the growth in the AE funds is exempt from tax and the AE funds are taxed on draw down, other than a 25% lump sum.
The lump sum can be taken tax free up to €200,000, is taxed at 20% between €200,000 and €500,000 and is taxed at 40% above €500,000. As the State is making a direct contribution for employees within the AE scheme, there is no tax relief being provided for employee contributions to AE.
- The standard fund threshold was last changed in 2014, when it was reduced from €2.3 million to €2 million. This will be increased to €2.8 million in four equal phases between 2026 and 2029.
Budget 2025 is an expansionary package with a significant injection of fiscal stimulus into the economy. The overall package will support economic activity in 2024, particularly consumer spending.
Taxation:
- The capital acquisition tax tax-free threshold in the
- Group A category for children inheriting from their parents is being increased from €335,000 to €400,000.
- Group B has been increased from €32,500 to €40,000,
- and Group C from €16,250 to €20,000.
- There is a reduction of 1% in the 4% USC rate that will now apply to incomes between €27,382 and €70,044. The 2% rate band ceiling has been lifted by €1,622. Incomes of less than €13,000 are exempt from USC.
- The standard rate threshold for income taxpayers has been increased from €42,000 to €44,000.
- An increase of €125 in the personal tax credit; the employee tax credit; the earned income credit, €150 in the home carer tax credit; the single person child carer tax credit; and an increase of €300 in the incapacitated child tax credit; the blind person’s tax credit; and €60 in the dependent relative tax credit.
- The small benefit exemption allowing an employer to provide limited non-cash benefits or rewards to their employees without a tax liability has been increased from €1,000 to €1,500.
- In relation to BIK relief for company cars, the temporary universal relief is being extended for a further year; and the EV specific relief of €35,000 will be extended for a further year.
- Excise duties on 20 cigarettes increased by €1.
- The carbon tax for petrol and diesel increased from €56 to €63.50 from 9th October.
- The VAT on installation of heat pumps reduced from 23% to 9%.
The Cost-of-Living Package
- Electricity credit of €250 will be paid in two instalments, one before the end of the year and the other in the new year.
- A €300 fuel allowance payment will be made in November.
- Bonus double payment for recipients of long-term social protection in October.
- Two double child-benefit payments will be paid before Christmas.
- €200 to recipients of the living alone allowance; and a €400 payment to those who receive the carer’s support grant; disability allowance; blind pension; invalidity pension; and domiciliary care allowance in November.
- Student fees to be reduced by €1,000 to €1,500 in this academic year.
- Wider eligibility for student grants.
- The 9% VAT reduction for gas and electricity, which was due to expire at the end of October has been extended to the end of April 2025.
- €12 increase in main social welfare rate for working age recipients and pensioners.
Social Welfare in 2025
- An increase of almost €2 billion in social welfare expenditure in 2025.
- €12 increase in main social welfare rate for working age recipients and pensioners.
Housing
- The rent credit for private renters, which was introduced in Budget 2023, has been increased from €750 to €1,000 for an individual and from €1,500 to €2,000 for a couple. Renters will be able to claim this higher relief in 2024.
- A one-year Mortgage Interest Tax Relief was introduced in Budget 2024 for homeowners with an outstanding mortgage balance on their primary dwelling house of between €80,000 and €500,000 as of 31st December 2022. This is being extended for another year. The added relief will be available on increased interest paid on mortgages in 2024 over 2022 at the standard rate of 20% income tax. The value of the relief will be the lesser of 20% of the excess interest figure or €1,250.
- The Help-to-Buy scheme will be extended until 2029. This scheme allows first-time buyers of a new home to claim up to €30,000 back from Revenue in income tax they have paid over the past four years so that it can be used as part of a deposit.
It is inequitable that the scheme does not apply to first-time buyers of previously owned homes.
- The relief for pre-letting expenses for landlords has been extended to the end of 2027.
- An extra 5% in stamp duty will be charged on the purchase of 10 or more houses by investment funds taking the rate from 10% to 15%.
- The Residential Zoned Land Tax will go ahead as planned in 2025, but an opportunity is being provided to landowners to have their land rezoned to reflect the economic activity they carry out on their land.
- The Vacant Homes Tax rate increased from 5 to 7 times the property’s LPT charge.
Other Measures
- The Motor Insurers Insolvency Compensation Levy will be reduced from 1% to 0%.
- The minimum wage will be increased by 80 cent or 6.3% from €12.70 per hour to €13.50 from 1st January 2025.
- The bank levy is being extended and is expected to raise €200 million.
- Enhanced energy grants for business.
- Free public transport for children under 9. It was previously limited to children under 5.
- An extra 24% in funding for childcare.
- The free schoolbook scheme is being extended to second-level schools.
- A new tax on vapes and e-cigarettes is being introduced.
- Parents of newborn children to receive a once-off triple child benefit payment.
- Junior Cert and Leaving Cert fees to be waived.
- All welfare payments, including pensions, to be increased by €12 per week.
Income Tax
Increase in income tax standard rate bands and tax credits.
Standard rate bands have been increased for 2025 by €2,000 for a single person, with corresponding increases for married couples, and a €125 increase in the main tax credits:
Income tax standard rate bands and main tax credits.
USC Bands
Increase in USC bands, the current €10,908 band of income taxed at 2.0% USC will be increased in 2025 to €13,747 with a corresponding reduction in the 4.0% band.
USC Rates and bands
No change in DIRT, Exit tax, Capital Gains Tax Capital Acquisition Tax rates.
Capital Acquisition bands changed but rate left unchanged.
No change in the 1% levy on life assurance policy premiums
PRSI rates All PRSI rates will be increased by 0.1% from 1 October 2024.
The Finance Bill will be published towards the end of October. It is possible that other taxation and pension changes not announced in the Budget could be introduced in the Bill, either at publication of the Bill or as it goes through the Dail and Senate.
Remember: A financial advisor can help you craft a personalised investment strategy tailored to your unique circumstances.
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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Our Budget 2025 Predictions
What the Budget 2025 might have as implications?
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.
What are the key areas that 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.
What are our thoughts on Taxation in relation to Budget 2025 ?
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.
What could be the Pension Changes in Budget 2025?
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.
Remember: A financial advisor can help you craft a personalised investment strategy tailored to your unique circumstances.
