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Budget 2025: Taxpayers in line for significant income tax and USC cuts

Social welfare increases of at least €12 per week; free Leaving Cert books and electricity credits being considered

Inheritance and gift tax
Budget 2025 will be framed around a tax and spending package of €8.3 billion. Illustration: Paul Scott
Jennifer Bray
Sat Aug 10 2024 - 06:00

Taxpayers are in line for significant income tax and USC cuts as part of Budget 2025, while social welfare increases of at least €12 per week are now also on the table.

The early shape of the budget to be delivered on October 1st is beginning to emerge with extended energy VAT cuts likely, while Ministers are also considering extending a new mortgage interest relief scheme. Free schoolbooks for Leaving Cert-level students may be rolled out, while an extension to the 20 per cent cut in public transport fares is now considered a done deal.

Hopes are receding, however, for another cut in childcare costs with sources pointing out that a further 25 per cent cut on the average cost of childcare will be introduced in September.

Work is ongoing on a new cost-of-living package which will be less than last year’s package of €2.7 billion. However, sources have said that households can expect a “significant boost” with a “mix” of lump sum payments due to be paid out before Christmas. Ministers are considering another round of electricity credits which could be bundled together and applied to accounts in one go before the end of the year.

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[ Budget 2025, what we know so far: Inheritance tax, lump sums and free schoolbooks ]

The reduced VAT rate on electricity and gas will likely be extended throughout the winter period but the reintroduction of a special 9 per cent VAT rate for hospitality businesses looks to be firmly off the table.

Budget 2025 will be framed around a tax and spending package of €8.3 billion, which will include additional public spending of €6.9 billion and taxation measures amounting to €1.4 billion. The final size of the additional cost-of-living package has not yet been agreed by the party leaders. This decision will be made closer to budget day.

The plan for personal taxation is threefold: increase the level at which the higher rate of tax kicks in, boost income tax credits and introduce further cuts to the universal social charge.

The standard rate tax band could now be increased to €44,000 or more, while Ministers are also considering cutting the 4 per cent USC rate to 3.5 per cent.

[ Budget 2025: How will the €8.3bn budget affect your pocket? ]

It is now considered highly likely that inheritance tax will be cut. The €335,000 tax-free threshold that applies to children inheriting from parents could rise to €400,000. The renter’s tax credit looks set to be raised from €750 to about €1,000.

Sources confirmed that extending the one-year mortgage interest relief scheme, which was introduced last year, is “under discussion”.

On welfare, a €12 increase in weekly welfare payments is being mooted by some Government figures.

On the cost of living, sources say that as well as the “mix” of lump sum payments, there is also the possibility of a double payment of child benefit. Lump sum payments made in the last budget included a €300 fuel allowance payment, a €400 disability grant and a €400 lump sum working family payment. Ministers are also pushing for another welfare Christmas bonus.

[ Budget 2025 will feature new cost-of-living package, says Taoiseach ]

A 25 per cent cut in the average cost of childcare is due to kick in next month, but there is, at present, little expectation in Government of a further change to hourly subsidies. The focus instead is on core funding, Deis funding and disability funding.

A further hike in the price of cigarettes has not been ruled out, and a tax on vapes could begin at some stage next year.

Jennifer Bray

Jennifer Bray

Jennifer Bray is a Political Correspondent with The Irish Times