SMEs left out in the cold in giveaway budget

Having ascended to the role of Finance Minister just four months ago, this year’s budget was Minister Jack Chambers’ first at the helm of the finance portfolio but the last we will see from the current Government. 

With a general election now firmly on the horizon, Budget 2025 was unsurprisingly brimming with generous giveaways for individual taxpayers, including a €1 billion bouquet of personal tax reductions alongside a €2.2 billion hamper of cost-of-living measures. 

The giveaways were spread so universally that most individual taxpayers, even those arguably not in need of them, got some degree of ‘bounce’ from the Government but, in a budget so warmly generous, some constituencies were left out in the cold. 

Sweetening the electorate

Among the suite of income tax measures announced in Budget 2025 were a €2,000 increase to the standard rate cut-off point, a one percent reduction to the four percent rate of Universal Social Charge and a €125 boost to each of the main personal tax credits. 

Taking into account the additional cost-of-living payments also announced (including €250 in new electricity credits, and a double payment of child benefit in November and December) the average worker will be about €1,000 better off over the next 12 months. 

Add to this an increase to the inheritance tax thresholds across all groupings and one would be forgiven for thinking this was a Celtic Tiger budget of the early to mid-2000s. 

Reacting to the package, the Fiscal Advisory Council pointed out how “only about half of the Government’s €2.2 billion cost-of-living measures were targeted,” and emphasised how “the same supports could have been provided to those most in need at a much lower cost”. 

Indeed, in an economy at near full employment with inflation at its lowest since 2021, it’s hard to see how such excessive giveaways, bolstering individual spending power, don’t ultimately risk overheating an already red-hot economy.

The opportunity cost 

But Budget 2025’s preoccupation with wooing individual voters in the run-up to an imminent election came at a cost to other constituencies, particularly small businesses. 

Despite months of assurances from Ministers that concrete steps would be taken in the Budget to address the burgeoning costs of doing business, many SMEs may rightly feel left out of the Government’s wave of generosity. 

Some measures will be welcomed, such as a one-off Energy Subsidy Scheme worth about €4,000 to businesses in the hospitality and retail sectors, as well an increase to the VAT registration thresholds for the supply of goods and services.

However, no real steps were taken to address the elephant in the room – namely, ballooning labour costs. 

Ask any small business across the country (and we have – in our Survey of Small Businesses conducted this summer) and they will tell you that labour costs are the single biggest operating cost they face today. 

And labour costs are now on the rise again – with a six percent increase to the minimum wage announced as part of the Budget package and an additional 1.5 percent uptick in staff pension costs coming down the track as part of pensions auto-enrolment, due to be launched next September. 

Budget 2025 offered a real opportunity for Government to take meaningful steps to ease these cost burdens and take the pressure off small businesses’ narrowing bottom lines. 

One option might have been to lower the rate of Employers’ PRSI by 1.5 percent to mitigate the concurrent cost of pensions auto-enrolment to employers, particularly those who employ workers in and around the minimum wage. 

We estimate that doing so would have cost in the region of €63 million per annum based on 164,000 people working full-time at the minimum wage. 

Such a step would have made a huge difference to small businesses across the country and comes with a more modest price tag than some of the more gratuitous cost-of-living measures included in the final budget package. 

But alas, because it is individuals and not businesses who get to vote on election day, perhaps such measures failed to meet the objective of political expediency. 

Stephen Lowry is Head of Public Policy at Chartered Accountants Ireland