Budget 2024: no major giveaways

As Budget 2024 approaches, the Irish Government  must grapple with a looming election and the need to ease the burden on citizens, explains Doone O’Doherty

Budget 2024 will be delivered against a backdrop of record-breaking corporate tax receipts, an upcoming general election and continuing cost-of-living challenges.

The Government is under pressure to deliver substantial tax savings. However, with just €1.1 billion set aside for tax cuts – down slightly from last year’s €1.13 billion – there isn’t much to play with.

The balancing act for the Government is to put more money in people’s pockets without further fuelling inflation.

Budget 2024 will likely include a number of once-off cost-of-living measures that support families. This gives the Government the opportunity to improve household finances without long-term consequences for the Exchequer or the economy.

Income tax and the Exchequer

For the first seven months of 2023, income tax yielded €18.2 billion in tax receipts for the Exchequer – up 8.8 percent on the same period last year. 

Against this robust backdrop, the Government must respond to taxpayers who want to know how much less tax they will pay in January 2024 compared with today. However, with only €1.1 billion set aside for tax cuts, we shouldn’t expect to see any major giveaways.

No decreases likely in income tax rates 

We probably won’t see any decrease in income tax rates as cuts to both the 20 percent and 40 percent rates would, by themselves, exceed the €1.1 billion available.

There was much debate in 2022 about the introduction of a third rate of income tax. However, there is little expectation that we will see it with the Government opting instead to increase the standard rate band.

Last year, the threshold at which people moved into the 40 percent tax bracket increased by €3,200 to €40,000. A further increase of €1,500, as modelled by the Tax Strategy Group (TSG), would cost €298 million in the first year (€343 million for a full year).

Increases to tax credits are also on the table. Budget 2023 increased the Personal Tax Credit, the Employee Tax Credit and the Earned Income Tax Credit by €75 each and the Home Carer Tax Credit by €100. The TSG estimates that a €50 increase in each credit this year will cost €242 million.

The TSG also examined the concept of refundable tax credits. However, this would be a fundamental change to the Irish personal tax system, requiring careful consideration of policy, administration and cost implications.

Linking the personal tax system with inflation

The Programme for Government undertook to index-link bands and credits from Budget 2022 onwards.

A recent report from the OECD on income taxes showed that 17 of the 38 OECD countries already automatically adjust personal income tax systems in line with inflation. Such a move would be expensive, but it would keep take-home earnings in line with inflation.

Otherwise, it is hard to see how proposed tax cuts would be actual tax cuts, given the levels of inflation seen in the economy of late.

USC burden likely to fall 

We expect the Universal Social Charge (USC) burden to fall.

A USC rate cut would be expensive, however.

A more likely (and cheaper) option is widening USC bands. The abolition of the 3 percent USC surcharge for self-employed people would be positive.

Retaining Ireland’s attractiveness

Ireland’s personal tax system must compare favourably with other countries around the world to retain the country’s attractiveness.

Special Assignee Relief Programme (SARP) continues to have a temporary placement on the statute book (it currently runs to 2025). A signal in Budget 2024 of the Government’s commitment to extend and enhance SARP would be welcomed by businesses.

Higher employer PRSI

There is a continuing need to raise more social insurance revenue as the population ages.

Options include a higher PRSI charge for the self-employed and employers. However, this would not go down well with small businesses, who face increases to the minimum wage, high energy bills, additional sick pay provisions and upcoming pension auto-enrolment for employees, which will be introduced in 2024.

Higher employer PRSI in some form seems inevitable in the years ahead, though perhaps not in this budget.

Easing the cost of living and housing 

The €1.1 billion set aside for tax cuts excludes once-off spending measures to help people with the cost of living. These are expected to include a repeat of last year’s energy credits.

For landlords, the Minister for Housing has stated that he will consider “efficient and effective” measures to attract and keep them in the Irish market.

For renters, we may see a repeat of (and maybe an increase in) the €500 rent credit introduced last year – although uptake has been lower than expected.

Mortgage holders will be looking for some relief considering recent rate increases, which could include a targeted form of mortgage interest relief.

And for first-time buyers, an extension of the Help to Buy Scheme (due to expire at the end of 2024) could be on the cards.

Widening of the capital acquisitions tax-free threshold

At present, children can inherit €335,000 tax-free from their parents, but there is an acknowledgement that this may not be enough to cover the cost of a typical family home. A widening of this tax-free threshold would be favourable.

Budget 2024 comes at a time when the business community is focused on supporting the workforce with the cost-of-living crisis while managing the increasing costs of doing business.

At the same time, businesses are focused on attracting, incentivising and retaining key talent and upskilling their workforce to meet changes in business practices – particularly technological disruption. Businesses need support through this challenging period.