Ireland’s budget provides short-term relief without long-term solutions
Joshua Taggart, Junior Consultant
Ireland’s budget announcement is an enormous one which focuses primarily on the cost-of-living, centring around individual one-off measures designed to relieve pressure on household budgets. The overall €14bn spending package covers everything from energy bills and fuel allowances to college fees and electronic cigarettes.
Household bills and the cost of living
It’s no great surprise that a major feature of the 2024 budget is the pressure which ordinary people are facing on a week-to-week basis, whether the growing cost of energy bills, the rising cost of basic foodstuffs and essentials.
Vacant property tax is being increased to five times the rate of local property tax, a strong incentive for homeowners to ‘use it or lose it’ when Ireland’s housing supply is dangerously low. Extending the Help-to-Buy scheme to Q4 2025 is also a welcome measure but needs to be paired with long-term supply-side reforms to ensure that Ireland’s housing market meets the overwhelming level of demand.
Three energy credits have been announced for households, amounting to €450 being paid to each household between April 2023 and April 2024. The lower rate of VAT (9 per cent) on energy products is being extended by another 12 months. While this eats into government revenues, it’s a welcome relief for businesses in the tech sector who are particularly energy-intensive such as those using data centres.
Grants and allowances for those living alone, those caring for others and child bonuses are all going up, while the Fuel Allowance payment has gone up by €300. The Government is promising another 25 per cent reduction in childcare costs but this won’t come into effect until September 2024.
Finally, a domestic tax on e-cigarettes and vapes has been announced for next year’s budget, and cigarette packets will become more expensive. However, the price of a pint or a bottle of wine will not go up.
The tax package of over €1.3bn was a major announcement for Minister McGrath, with personal, PAYE and earned income tax credits increasing by €100 and the standard rate band being increased by €2,000.
Tax relief is obviously welcome – it’s something which the UK Conservative Party is still desperately fighting its own membership on. However, Ireland has a major advantage over the UK in that its real GDP is estimated to have bounced back in 2022 by 12 per cent, allowing some room for tax relief targeted at those who are most vulnerable.
There is a bespoke package of €250m for Irish SMEs which intends to alleviate the pressure imposed by high energy costs. Businesses will receive a one-time grant worth almost 50 per cent of their rates. R&D tax credits are being increased from 25 to 30 per cent, while investors can now claim up to €500,000 via the Employment Investment Incentive Scheme.
Additionally, the Government is introducing a tax break for angel investors, reducing capital gains tax when investors dispose of a qualifying investment for gains up to twice the value of their original investment. These will be welcome signals to Ireland’s budding venture capital sector, specifically in fintech and biotech which are particularly reliant upon seed capital.
The Government will provide over €800m in core funding to Ireland’s national health service in light of its ageing and growing population.
The last budget for new healthcare measures was €250m last year – this year it is only €100m, and there are no details about a forthcoming ‘health resilience fund’. This lack of clarity and funding for healthcare takes place within a fierce debate about the funding of Ireland’s healthcare service, which has been falling well below expected standards. Healthcare is a huge portion of Ireland’s already-strained budget, and healthcare spending is likely to be a huge political battleground for Sinn Féin in the coming months.
Climate and environment
Ireland is establishing a new climate fund, the Future Ireland Fund, with the potential to reach €100bn by the mid-2030s and funded by annual contributions of 0.8 per cent of GDP from 2024 to 2035. The includes approximately €4bn in seed funding from the National Reserve Fund, and another €14bn is being allocated to the Infrastructure, Climate and Nature Fund by 2030. Considering the Government’s existing reliance on the support of the Greens, this is likely to placate concerns that not enough resources are being contributed towards Ireland’s Climate Action Plan 2021 despite their goal of 51 per cent reduction in greenhouse gas emissions by 2030 (which Ireland is currently forecast to miss).