Budget 2024 needs to be pro-growth

Taxpayers need to see pro-growth policies in Budget 2024 as lack of response to needs of private business poses risks for the Irish economy, urges PwC’s Paraic Burke.

As Ministers gather to discuss what will or will not make the cut in Budget 2024, the general population is well-versed on the challenges facing Government. From inflation to capacity constraints, the Minister for Finance will need to perform a delicate balancing act.

With buoyant Exchequer receipts on the one hand and the recent announcement of a drop in corporation tax receipts, and people clamouring for financial assistance, can the Government balance prudence with popularity?

“Ireland’s SMEs employ more than 1m people. In many respects, they are the backbone of the Irish economy”

Now that the global corporate tax landscape is changing, we should reassess our offering to ensure we remain truly competitive. 

Who’s thinking of the entrepreneurs?

While the Government presses ahead with implementing global tax reforms, pro-growth initiatives that incentivise investment and encourage employment (such as reducing the cost of employment, increasing the after-tax returns for entrepreneurs and incentivising climate change projects) are conspicuous by their absence. 

We welcome the announcement of a participation exemption for foreign dividends from 2025, and certainly this is a step in the right direction.  

International reform shows no sign of slowing down. That said, the Department of Finance will need to focus on domestic tax issues while also addressing international reforms. Policies must drive a pro-growth agenda.

For example, at present, investors must spend at least 50% of their time over three years working for the company in which they invest in order to qualify for Entrepreneur Relief. This effectively rules out angel or venture capital investors for small and medium-sized enterprises (SMEs), which is an ongoing source of frustration.

Such investors typically support several businesses at the same time and are not interested in fulfilling an onerous working time requirement. At a time when start-ups are having difficulty raising funds, it makes no sense to lock out external private investors who provide invaluable advice as well as finance.

SMEs matter

Ireland’s SMEs employ more than 1m people. In many respects, they are the backbone of the Irish economy.

However, Ireland’s tax system changes mainly in response to the needs of multinational businesses, and the lack of response to the needs of private business and their investors poses risks for the Irish economy. Budget 2024 must also support investment and innovation in indigenous businesses.

For example, reducing the CGT rate for certain classes of investors to 20% would increase the attractiveness of entering into commercial activities as well as increasing the capital that successful business people have for future investment.  

The cost of employment must also be addressed if Ireland is to retain its reputation as one of the leading countries to start a business. The Tax Strategy Group papers consider a range of measures—from reducing the lower employer PRSI rate of 8.8%to zero to reconsidering the relevance of the PRSI tapering credit for employees. Alleviating some of the pressures on the Social Insurance Fund through the upcoming move to auto-enrolment for pensions may also offer some scope.

Climate action

Ireland will not meet its carbon budget targets unless urgent action is taken.  Government’s plan to become a major exporter of renewable energy through a multibillion euro expansion of power interconnectors from Ireland to mainland Europe and the UK is certainly a step in the right direction.

For example, the adoption of the Temporary Crisis and Transition Framework (TCTF) at an EU level provides the Irish Government with a short window (until the end of December 2025) to introduce additional grants and tax incentives.

These could include the expansion of the accelerated capital allowances regime and the enhancement of its provisions; green tax credits; State-backed loans to facilitate investment in green energy projects/infrastructure by corporates, particularly SMEs; and the expansion of the grant regime to incentivise decarbonisation across all sectors of our economy.

Turning policy into action

Budget 2024 is an opportunity for the Ministers to deliver pro-growth policies. The Government must turn policy into action and invest in strategically important areas if the economy’s future growth is to be secured and sustained.

Undoubtedly, this will be the Coalition’s most politically difficult budget. Government has a large surplus to play with yet will struggle to meet the expectations of a public squeezed by ever higher interest rates, energy prices and the everyday cost-of-living.

The Government will be feeling the pressure to intervene on all sides, but with only a €6.4bn core budgetary package to work with, they cannot satisfy everyone. With this being potentially the final Budget before the next election, how the Government allocates this limited package will be interesting to observe.

Paraic Burke
Paraic Burke is a Tax Partner at PwC and specialises in corporate tax practice. He has more than 20 years’ experience working with Irish headquartered businesses, private companies and multinational companies, on efficient structuring of business and property investments both in Ireland and abroad. He has significant experiences in the areas of group structuring, tax efficient cross-border financing and general corporate tax advice.