Budget 2025 should focus on generating revenue, not cutting taxes
Budget 2025 should avoid using taxation measures as a means of providing short term solutions to the ongoing cost-of-living challenges that all of society continues to face. Reductions in income taxes, indirect taxes, excise duties and levies represent poorly targeted measures and should be avoided. Rather than outlining plans to cut personal income taxes, Government should focus on what recurring taxation measures are required in Budget 2025 to fund the services and infrastructure that a growing and ageing population requires, now and into the future.
Resourcing the future
Our levels of taxation will have to increase in years to come, just to provide existing levels of service to a growing and ageing population. That is a fact. What’s more, we know that the existing levels of public services and infrastructure are nowhere near what is required for that population at present. Government must plan for and begin to implement the recurring taxation measures required to fund an appropriate level of social infrastructure for the population. This must start in Budget 2025.
Population projections must inform our revenue policy: we are going to need more recurrent revenue, not less to fund the healthcare, social welfare, housing adaptation, childcare, education, homecare, disability and community care services that will be required in the coming decades.
Income taxes
It is extremely concerning to hear Government spokespersons, for the third year in a row, talking about tax cuts as a key element of Budget 2025. Income tax reductions in last year’s Budget went disproportionately to those on higher incomes, and completely failed to reach lower income workers. This upwards redistribution of resources has led to a widening of income gaps. A repeat of these policies in Budget 2025 will only serve to exacerbate income gaps.
Lower income workers earning around €15 to €20 per hour (€30,000 to €40,000 per annum) gained the least from Budget 2024 and stand to gain the least from income tax changes in Budget 2025 if these changes mirror those of previous years. These are workers who are earning above the minimum wage but below annual income levels that allow them to experience much of the value of the income tax changes. Year after year this large group of workers hears of ‘gains’ from the Budget but experiences little if any of them.
If Government is really serious about reaching these workers and their families, they must improve the social wage to this group, reduce costs to public services, and look at policies such as refundable tax credits as a means of making the taxation system fairer for this low income group.
Government should introduce Refundable Tax Credits (for the two main income tax credits) in Budget 2025 – this would allow low-income workers earning too little to benefit from the full value of their tax credits to be refunded the difference. Government should also increase the PAYE and Earned Income tax credits by €5 per week. This would ensure that any income tax changes are experienced by all workers, not just those on higher incomes. In addition, Government should increase by 2% the minimum effective tax rate paid by people earning €400,000.
Windfall revenues
Enormous windfall tax surpluses have been generated. Government must use the enormous windfall tax surpluses to provide the infrastructure required to keep pace with population growth. A proportion must be allocated to a Domestic Infrastructure Fund which should immediately begin to tackle deficits in our housing, energy, water and transport. This money should deliver in 2025 more social homes, the classrooms and school buildings and infrastructure required for every child, and ensuring our public transport fleet, our footpaths and our active travel routes are accessible for people with a disability. These are simple, straightforward, basic requirements that Government has the money to resource.
Increasing PRSI to strengthen the Social Insurance System
A core aspect of the social safety net provided by the State is the social insurance system. In European terms, Ireland collects very low levels of PRSI from employers, employees and the self-employed. While we welcome the increase of 0.1% in the PRSI rate introduced in the last budget, this does not adequately address the anticipated future shortfalls in the social insurance fund, particularly in light of Ireland’s ageing population.
Budget 2025 should commence a process of increasing all PRSI rates by 0.5% a year for the next five years (reaching 6.5% and 13.65% by 2028). To facilitate business, the initial increase should be delayed to April 2025 and will raise an additional €900m in 2025.
Taxing Empty Houses / Underutilised Land
Given the ongoing housing crisis and shortage of housing stock, building new units alone is not the only solution, as many existing units remain unoccupied. Budget 2025 should reduce the Vacant Homes Tax occupancy period to six-months and increase the rate to ten times the annual Local Property Tax level.
Social Justice Ireland welcomes the introduction of Residential Zoned Land Tax to address inefficiencies with underutilised land suitable for housing. Budget 2025 should increase the Residential Zoned Land Tax to 5 per cent of the annual land value.
A Minimum Effective Rate of Corporation Tax
The issue of corporate tax contributions is principally one of fairness. Profitable firms with substantial income should make a contribution to society rather than pursue various schemes and methods to avoid such contributions. Over the past year the OECD BEPS Pillar 2 proposals have been adopted for large firms (those with a turnover above €750m) who will now pay an effective taxation rate of 15%. This is welcome and should bring additional revenue, in the short-term, from 2026.
Budget Choices 2025 contains detailed, fully-costed Budgetary packages across more than a dozen policy areas including health, housing, education, welfare, sustainability and more; it also contains a range of costed, revenue-raising proposals. It is available to download here.