While the context is one of an economy delivering a government surplus, the budget is set against a backdrop of escalating international conflicts and geopolitical instability, climate change and deglobalisation, as well as highly concentrated transient revenue streams, an aging population and digital transition. The Modified Domestic Demand (MDD), a proxy measure for the domestic economy, is projected to grow by 2.5% this year and by close to 3% next year. Inflation has eased, projected to remain below 2% both this year and next, which should allow for an improvement in real wages and help support growth in consumer spending.
A total of €3 billion has been set aside for infrastructure spending, with a focus on building housing, water, and electricity grid infrastructure.
Employment and taxation
Ireland continues to experience elevated levels of employment, with almost three- quarters of the working-age population now in employment and participation among female workers at its highest level ever. In addition, the government projects that employment is due to increase by almost 110,000 in the two-year period to the end of 2025.
The minister announced a personal income tax package of €1.6 billion to ensure all workers will see an increase in their take-home pay.
- There will be a 1% reduction on the Universal Social Charge (USC) from 4% to 3%.
- The entry point for the higher 40% tax band will be raised from €42,000 to €44,000. This change will also benefit married couples and civil partners.
- The National Minimum Wage will rise by €0.80 on January 1, 2025, reaching €13.50 per hour. Simultaneously, the USC entry threshold for the new 3% rate will be increased to €27,382. This means that a full-time worker on the minimum wage will see an increase in their net take home pay of approximately €1,424 on an annual basis.
- The main tax credits will increase by €125. Tax credits for a variety of caring/ dependency and disability roles and other targeted groups have further increases.
Supporting business
- On energy and VAT relief, the extension of the 9% VAT rate on gas and electricity helps ease operational costs for businesses, particularly small and medium-sized enterprises (SMEs). With energy prices being a major overhead, this relief allows companies to redirect savings into other areas like employee development, wage increases and enhancing the overall work environment.
- In relation to small business support, there is a Small Business Exemption which will raise the small business exemption to €1,500 and increase the non-cash benefits limit encouraging businesses to offer more perks to employees. There is also an exemption for foreign dividends for companies engaged in international business – this provides relief from double taxation, freeing up capital for reinvestment. This could lead to expansion and job creation, improving stability and growth opportunities within the workplace. Additionally, the R&D Tax Credit will increase to help promote innovation, which can lead to more dynamic workplace environments. As businesses invest in new technologies and products, employees are likely to gain from upskilling opportunities and working in more innovative roles.
- Regarding startups and investment incentives, the budget extended key investment schemes, increased limits for angel investors and capital gains exemptions to provide more funding opportunities for startups. This could boost job creation in innovative sectors, offering employees more diverse and engaging work environments.
- In tax reliefs for large capital projects, additional tax reliefs will give companies room to grow without being overburdened by costs. As these businesses expand, employees benefit from greater job security, more career advancement opportunities, and a stronger workplace culture.
- The Benefit-in-Kind (BIK) relief of €35,000 for electric company vehicles is being increased by €10,000 for 2025, and there will be a BIK exemption for the provision of electric vehicle chargers at the home of a director or employee.
Social welfare and families
Minister for Public Expenditure Paschal Donohoe announced a €2.6 billion social protection package for Budget 2025, described as the largest in Ireland history, with significant increases in social welfare payments, and a package of winter payments to address the cost-of-living increases.
- The maximum rate of most weekly social welfare payments will increase by €12 from January 2025 with proportionate increases for qualified adults and people on reduced rates of payment.
- The €15 increase in social insurance payments paid to employees such as maternity, paternity, adoptive and parent's benefit. Where employers make a top-up payment (on top of social welfare payments), the increase in these state payments will result in a cost saving for employers of €12–€15 per week per person receiving the benefit.
- A range of measures were announced to support parents, families, and carers, though no changes were made to the National Childcare Scheme. Financial supports to parents will enable more parents, especially mothers to stay or return to labour market. And in what is being termed a ‘baby boost’, the payment paid on the birth of a newborn will increase to €420 from 1 January.
- Cost-of-living measures included a wide range of lump sum payments for households, families, and individuals, including an energy credit of €250, and a €400 lump sum for all families getting the Working Family Payment. The reduced VAT rate on electricity and gas will be extended for another 6 months to 30 April 2025. Tenants will get extra €250 in the renter’s tax credit to cover both 2024 and 2025, bringing the relief up to €1,000 for both years.
- A new pay-related benefit is due to be introduced by the Minister for Social Protection from 31 March 2025 for new, fully unemployed people who have a strong and recent attachment to the labour market.
- As part of a €35 million women’s healthcare package, free hormone replacement therapy products, used by some women to relieve symptoms of menopause, will be introduced next year, covering the full cost of medicines, patches, and devices. The need to improve menopause care was called out as a priority in the first Women's Health Action Plan in 2022.
Education and skills
- The government has committed to an investment in educational infrastructure. Budget 2025’s €1.3 billion for school projects aims to improve educational facilities. This will build a strong foundation for a future workforce that is better equipped for skills development. But surprisingly, there was not an investment in skills in high demand, high tech, digital innovation and AI.
- The Economic and Social Research Institute reported low participation rates of people with disabilities in employment and even lower for people with intellectual disabilities. The CIPD welcomes the support for special education, adding 768 special education teachers and 1,600 special needs assistants. Having access to earlier support and interventions will promote better educational outcomes for people with disabilities, which is an investment in future inclusivity and employability.
- The government had wellbeing in mind with its Keeping Childhood Smartphone Free initiative which aims to build healthier digital habits at school and ultimately lead to them being better prepared for entering the workforce, increasing digital wellness and work–life balance.
- The €4.5 billion allocated in Budget 2025 to the Department of Further and Higher Education, Research, Innovation, and Science underscores Ireland's commitment to building a future-ready workforce. With a €1.5 billion multiannual package to 2030, the National Training Fund will play a crucial role in upskilling workers, particularly in micro enterprises and SMEs, and supporting lifelong learning. This investment also strengthens core funding for Higher Education, boosting sectors such as healthcare and veterinary education under the ‘expressions of interest expansion programme’, while increasing PhD stipends to attract top talent in research and innovation.
- A focus on expanding the craft apprenticeship system and developing a green talent pipeline aligns with national priorities like Housing for All and the Climate Action Plan. With €78 million earmarked for apprenticeships, the government is preparing Ireland’s workforce for the demands of sustainable construction and green technologies.
Conclusion
Economic growth and tax revenue provided the opportunity for the population to benefit from Budget 2025. There was a significant range of increases and amendments, which will all add up to putting more money in people’s pockets and supporting future investment. While a package of measures was announced for SMEs, there was no recognition of the increased payroll costs for many small businesses from the introduction of pension auto enrolment set for September 2025.
Housing needs to be urgently addressed, and while the Help-to-Buy, Pre-letting Expenses, and Mortgage Relief schemes have been extended, the move does not remove the pressure point when accommodation is difficult to find. Urgent progress is required to ease the pressure on workers, and hence employers, in relation to the availability and affordability of housing.
The CIPD hopes that the childcare and family measures will make it easier for people to stay working while balancing their family’s needs. The investment in education is necessary to expand access and deliver much needed skills for Ireland’s future workforce, but the budget left a significant gap regarding investment in digital transformation and AI upskilling, skills in strong demand by employers and which is needed to continue to grow the economy.
Listen to our podcast on Budget 2025 for further discussion.
