Budget 2025: How it’s impacting employers and employees

With the general election approaching, many are asking: is Budget 2025 truly delivering for the people, or is it just a political play for votes? Announced October 1st, Budget 2025 sets out a €10.5 billion package aimed at addressing key areas such as energy support, taxation, education, social welfare, cost of living, housing, health, and employment. The €10.5 billion is broken down as follows: 

• €6.9 billion in total expenditure 
• €2 billion in once-off measures 
• €1.6 billion in capital expenditure 
• €1.4 billion for permanent tax changes 
• €1.03 billion is allocated to the Department of Enterprise, Trade, and Employment. 

While some measures are already in effect, others will take shape from January 2025 onwards. Certain measures are still pending finalisation and may change depending on legislative approval. It will be crucial to track the changes and how they will impact different sectors. 

Impact on employers 

Budget 2025 supports SMEs and start-ups with innovation incentives, but poses challenges through rising costs and changes in wages and taxes. The extension of several key schemes, including the Employment Investment Incentive (EII), Start-Up Relief for Entrepreneurs, and the Start-Up Capital Incentive, until the end of 2026, ensures ongoing support for scaling businesses. The EII relief limit will also double to €1 million, encouraging more private investment in Irish companies. The Small Benefit Exemption has been raised from €1,000 to €1,500, allowing employers to provide non-cash benefits to employees without the burden of income tax, PRSI, and USC. This offers businesses a cost-effective way to reward their staff. 

The introduction of the foreign dividend participation exemption will enhance Ireland’s tax proposition for large corporations. In addition, businesses in the retail and hospitality sectors will receive vital support through the €4,000 Power Up Grant to cover electricity costs. Despite available support grants, rising energy costs remain a loss for businesses that do not qualify for these grants or are outside the hospitality and retail sectors. The increase in the national minimum wage to €13.50 per hour will also raise payroll costs for businesses across the country, adding further financial pressure. 

On the tax front, businesses will see increased support through Research and Development (R&D) tax credits, with the first-year payment threshold rising from €50,000 to €75,000. This will help smaller companies that engage in R&D for the first time or on a limited scale. The Capital Gains Tax relief for angel investors in innovative start-ups has also been improved, increasing the lifetime limit from €3 million to €10 million. This is expected to attract more investment into Ireland’s start-up ecosystem. 

Additionally, the extension of the universal relief on the Original Market Value of company cars for another year benefits companies providing vehicles to their employees. Electric vehicle owners will enjoy a €45,000 BIK relief in 2025, comprising €35,000 for electric vehicle-specific relief and €10,000 in universal relief. A BIK exemption for home chargers also makes it easier for employers to support employees driving electric vehicles. 

Impact on employees 

Budget 2025 also introduces a range of benefits for employees, starting with an increase in the national minimum wage, which will rise to €13.50 per hour from January 1, 2025. This provides a much-needed boost for workers, particularly those in low-income jobs. Unemployment benefits, such as those from the Community Employment and Tús schemes, will also see increases. Transport benefits are another highlight, with public transport fares remaining 20% lower, and employees with company electric vehicles enjoying €45,000 in BIK relief. Home chargers provided by employers will also be exempt from BIK, supporting eco-friendly commuting options. 

Tax changes will also benefit employees, with the standard income tax rate band increasing to €44,000, offering tax savings for individuals. Universal Social Charge (USC) adjustments ensure that workers earning up to €27,382 remain outside higher USC rates, while the 4% USC rate is reduced to 3% for those earning between €27,382 and €70,044. Income credits will rise by €125, bringing personal, employee, and earned income tax credits to €2,000, giving workers more disposable income. 

While the national minimum wage increase provides direct financial benefits to workers, there is concern among businesses regarding rising payroll costs. This could lead to potential reductions in hiring, increased prices, or cuts in working hours. Some workers may feel the increased wage might not fully offset rising living costs, especially in urban areas. 

Conclusion 

Budget 2025 offers significant support for both employers and employees, though it presents opportunities and challenges across sectors. For businesses, it extends crucial schemes like the Employment Investment Incentive and boosts R&D tax credits. However, the increase in the national minimum wage poses challenges, raising payroll costs for many. For employees, the budget introduces a wage boost, tax relief, and transport benefits, including 20% off public transport fares and €45,000 in electric vehicle BIK relief. While these measures aim to improve financial well-being, some workers may still struggle with rising living costs. 

With the general election approaching, there are questions about whether Budget 2025 truly serves the people or is more of a political strategy. ISME acknowledged the value of several measures but noted that the budget seemed more focused on the election rather than on addressing business needs. Despite the support for wages and tax relief, the budget’s failure to provide more comprehensive help for businesses suggests a focus on short-term political gains rather than long-term economic stability. Further information on Budget 2025 can be found here.