HomeBussinessBudget 2025: flagged tax cuts make little sense

Budget 2025: flagged tax cuts make little sense

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Budget 2025 needs to be one that helps us build towards a sustainable, prosperous and inclusive future for all. We want to avoid the booms and busts that have caused such pain in the past. The recent crises have showed that public services, good employment, and the broader welfare state are the indispensable bedrocks that underpin people’s economic wellbeing.

We as a country need to develop a strategy to ensure consistent wellbeing gains over the next generation for everyone in society. Congress believe the Government’s economic goals should be based on four mutually reinforcing pillars. These pillars are a high productivity economy; labour market participation and good jobs for all; economic security, and economic stability that doesn’t sacrifice dynamism.

We need an honest conversation about taxes and our long-term vulnerabilities. If we want better services, adequate income supports, and structural improvements in areas such as childcare, public transport and housing then we will have to pay for them.

Some €1.4 billion of tax cuts have been flagged for Budget 2025. This will be inflationary and procyclical in the current strong economic climate and frankly makes little economic sense. Of course, tax cuts are also diametrically opposed to the core recommendation of the Commission on Taxation and Welfare. The Commission argued that Government revenues will have to meaningfully rise as a share of national output in the years to come.

The main reason for the commission’s recommendation is the immense pressures on public spending that are hurtling down the tracks. Ageing demographics will greatly increase demand for spending on pensions, healthcare and social care, and it will gradually lead to persistently slower economic growth and relatively weaker income tax receipts as the working age ratio declines. The cost of climate action and the eventual loss of receipts from green taxes will also put pressure on the public finances, as will demand for improved infrastructure and public services. This is before we even consider the perilous fragility of our concentrated corporation tax base and our economic model’s vulnerability to geopolitical shifts and deglobalisation.

So, cutting taxes will mean larger tax increases in the future. The eventual burden of future tax increases is therefore being pushed on to younger workers and on to future workers. Of course, a specific tax cut might have some policy merit on an individual basis. If so, such a tax cut should be offset by a tax increase somewhere else. For example, cuts to taxes on workers could be offset by increases in taxes on capital stocks. Such a measure would likely be broadly progressive and good for growth. Ultimately, our decisions about tax should be based on social equity and economic efficiency.

Unfortunately, this does not seem to be the way policy is developing. The Government appears to have decided to cut inheritance tax by raising its threshold to €400,000. This is an extremely regressive move that will benefit those lucky enough to receive a large inheritance that they have not earned to the tune of over €21,000. A minimum wage worker on 35 hours would have to work for over 48 weeks to reach that amount. In contrast, someone actually working for their income for 10 years to get to €400,000 would pay close to €68,000 in tax. An inheritance tax cut is also unlikely to produce any meaningful benefit to the economy particularly when considered against its opportunity cost. More positively, it seems the sectoral lobbying to restore the expensive hospitality VAT reduction has been unsuccessful. Such crisis time supports are not appropriate during an economic upswing.

Tax cuts will not help solve our crises in housing and lack of affordable childcare provision and will do little to ease the cost of living crisis for the most vulnerable households. A better approach is to directly target vulnerable households through a combination of median earnings benchmarked welfare payments and expanded provision of free or heavily subsidised public services. We need to see further measures to reduce the cost of early years services and to gradually move to a public-led system. There should also be further reductions in the cost of education, faster implementation of Sláintecare, and an expansion of public transport.

At the same time, higher income households do not need to receive another round of energy credits, or indeed any other form of pre-election giveaway. If the goal of the energy credits is to reduce the cost of living for households experiencing poverty or deprivation then there is simply no rationale for giving them to affluent cohorts. Cost of living measures should be targeted at those households that actually need help.

One group particularly affected by the cost of living crisis is low paid workers. It is crucial that Government not rollback on its promise to reach 60 per cent of median earnings by 2026. This means sufficient progress is essential in Budget 2025. The Government’s decision on the minimum wage will be an important litmus test of their commitment to social equity.

A longer term strategic and structural approach should determine our budgetary policy, our approach to the provision of public services, to welfare policy, and to the sustainability of our tax base, in a world increasingly characterised by disruptive megatrends.

Owen Reidy is general secretary of the Irish Congress of Trade Unions

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