What to expect in the upcoming Budget

On October 1st, Minister for Finance Jack Chambers will present his first budget to the Dáil along Minister for Public Expenditure Paschal Donohoe. 

As ever, there has been lots of kite flying and leaks in advance. And with the coffers overflowing with record corporate tax receipts, a recent €13 billion Apple windfall, and a general election looming, expectations for a generous budget are fairly high to say the least.

So here’s a roundup of what we can expect and whether you’ll be much better off for next year.    

1. Energy credits 

Last winter €450 was paid to all households in three €150 instalments (and the winter before €600 in total was paid).

With energy bills having eased slightly since last year it doesn’t look as if the Government will be as generous this year. 

It’s likely one €250 or €300 credit will be paid in one instalment to all households just before Christmas. 

As in previous years, the money will be credited automatically to your electricity account by your supplier so you won’t have to do anything.

2. VAT on energy bills

The Government temporarily reduced the rate of VAT on gas and electricity bills from 13.5% to 9% back in 2021.

It’s likely the reduced rate will be extended for at least another year.

Although energy bills have fallen slightly this year, electricity prices are still around 80% above where they were before the energy crisis broke out while gas prices are around double previous levels.

If the Government were to hike back up the rate of VAT it would add around €65 a year to the average annual electricity bill and around €55 a year to the average annual gas bill. 

3. Fuel allowance 

Households in receipt of the fuel allowance will likely receive an extra lump sum of €200 or €300 before Christmas in addition to their regular weekly payment. 

See here for more information on the allowance and how to apply for it.

4. Tax cuts 

At the moment anyone who earns over €42,000 a year will pay income tax at the top 40% rate on anything they earn above this amount. 

This is very low by international standards and is even below the average full-time wage in Ireland.

The cut-off rate will likely increase by €2,000 to €44,000 meaning workers can earn another €2,000 before being taxed at 40% (as opposed to 20%). 

Anyone earning over €44,000 a year will benefit by the full amount of €33 a month.  

However a slightly bigger increase to €45,00 isn't off the cards.

The USC rates and bands will also likely be tweaked. The 2% and 4% rates may be reduced to 1.5% and 3.5% respectively. And the USC bands will also likely be widened meaning you can earn more before hitting a higher rate. 

Anyone earning the average wage of around €50,000 a year will likely benefit by around €15 to €20 a month.  

The main tax credits should also be increased slightly. Tax credits sound complicated but they're not really. They simply reduce your tax bill by the size of the tax credit. 

The single person tax credit of €1,875 and the employer tax credit of €1,875 (which all PAYE workers get) might each increase by €100, so €200 in total. 

This will save the average worker €200 a year or almost €17 a month.   

Other tax credits such as the home carer tax credit may also be increased.

5. Inheritance tax  

Small changes to inheritance tax are also likely. 

Inheritance tax has become an increasingly controversial topic in recent years as ever-rising property prices are leaving children with hefty tax bills if they inherit the family home. And there have even been calls to abolish it entirely. 

How much someone can inherit tax-free depends on their relationship to the person giving the gift and is divided into three groups/thresholds: A, B and C. 

At the moment parents can gift their children €335,000 in total over their lifetime before they incur Capital Acquisitions Tax at 33%. This was as high as almost €550,000 in 2009 but was reduced over the following years as a result of the financial crash. 

So if your parents left you the family home worth €500,000 you’d be hit with a tax bill of at least €54,4450 (33% of €500,000 - €335,000). This isn’t an amount that many can easily afford and usually the tax bill must be paid within one year of inheriting the property.

The group A threshold is likely to increase to around €400,000 with smaller changes for the other groups.   

Additionally, you're not liable for Capital Acquisitions Tax on gifts valued at €3,000 or less received from any person in a single calendar year.

6. The Christmas bonus 

The double payment of social welfare payments in December i.e. the ‘Christmas bonus’ will likely be repeated.

7. Welfare rates/pension 

There is also likely to be a small increase of €5 or €10 a week in most social welfare rates.  

The rate of children's allowance may not change but an extra one-off payment before Christmas is likely.

8. Carbon tax

It’s not all good news. The carbon tax will rise again. 

Carbon tax will increase by a further €7.50 to €63.50 per tonne of CO2.

This will add around another 2 or 3 cent to every litre of petrol and diesel.

It will also add around another €20 a year to the average annual gas bill. 

9. Excise duty 

It's unlikely excise duty on alcohol or fuel will increase. 

But another 50 cent hike on a packet of cigarettes seems almost certain. 

10. Pension changes

Pension rules are long and complicated!

But in general when someone retires they can take 25% of their retirement fund as a tax-free cash lump sum. The rest can then be used to buy an annuity (which is simply a guaranteed pension for life) or invested in an approved retirement fund (AFR). You then pay income tax on your monthly pension income if applicable.

However if you've accumulated a pension pot of over €2 million at retirement a tax surcharge of 40% applies on anything above this amount. You will then also pay income tax on your monthly pension income if applicable. 

The Government is considering raising this limit to €2.8m in four equal phases each year between 2026 and 2029.

So great if you're super wealthy, but of no major concern to most who'll have nowhere near a pension of this size upon retirement!