Budget 2023: Tax credit for renters and a reduction in childcare fees in €11bn package

The €11 billion worth of measures in Budget 2023 represents “unprecedented resources with a breadth of measures and a speed of execution we have not seen before”, Minister for Public Expenditure Michael McGrath told the Dáil on Tuesday.

As he and Minister for Finance Paschal Donohoe unveiled tax and spending measures for next year as well as a €4.1 billion package of cost-of-living measures which begin to kick in within weeks, he said: “This budget will make a difference, and people will see that difference quickly.”

But what can households and businesses expect from Budget 2023?

Tax

The Government has earmarked more than €1 billion for tax measures, with Fine Gael in particular pushing for significant cuts to taxpayers’ bills. As part of this budget, the top tax rate will now only apply to income above €40,000. At present, the higher 40 per cent tax rate kicks in on income in excess of €36,800 for a single person. The changes could be worth €800 to a single person and €1,600 to a two-income couple. In addition, the second USC rate band (2 per cent) will be increased from €21,295 to €22,920 in line with the 80 cent per hour increase in the national minimum wage recently agreed by the Government.

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Welfare

Talks on a €2 billion welfare package continued late on Monday night, with the following agreed: a €12 increase in welfare payments; a further double payment of welfare payments in October; the payment of the Christmas bonus; a double payment of child benefit in November (worth €140 per child); a €500 lump sum for families availing of the working family payment; a €500 lump sum for carers, which will be given to every carer in November; a €500 cost of disability payment; and a €20 increase of the domiciliary care allowance for sick children, meaning the payment will now be €320. There will also be a €2 increase on qualifying child payments for the over- and under-12s.

To help with soaring energy costs for households at risk of fuel poverty, there will be a €400 fuel allowance lump sum payment to about 370,000 people in November, and from January 1st the qualifying income threshold for the allowance will increase from €120 to €200 above the relevant rate of the contributory State pension. For the over-70s, the weekly fuel allowance means limit will be increased to €500 for single people and €1,000 for couples.

Energy and transport

A €600 payment for household energy bills will be split across three payments either side of Christmas. The first credit will be paid in November, the second in January and the third in March. The 20 per cent public transport fare reduction will be continued to the end of 2023, along with additional youth travel fare reductions. Some €2.6 billion will be spent on projects such as BusConnects, Metrolink and Dart+. Existing grants for the purchase of electric vehicles and power points for them will remain in place as part of efforts to encourage their uptake.

Housing

The new €500 rent tax credit, which is aimed at tenants that do not get any other housing supports, will apply for 2023 and subsequent years until at least 2025. People will also be able to apply for a credit for rent paid in 2022 from early next year. About 400,000 people are expected to benefit from the credit.

The Help to Buy scheme for first-time buyers is set to be extended for another two years until the end of 2024. A new vacant property tax was also announced in the budget. The rates of payment are to be double the existing Local Property Tax (LPT) rate for a given property. Under the plans, owners will have to pay the vacant property tax on top of the existing LPT payment

Mr McGrath outlined plans to provide funding for 2,500 additional apprenticeship places to assist in homebuilding.

A new Vacant Homes Tax (VHT) will be self-assessed and is expected to raise as little as €3 million a year. It will be charged at a rate that’s three times the property’s existing LPT rate.

Mr Donohoe said he is introducing the tax to increase the supply of homes for rent or purchase to meet demand. Budget documents say the “primary objective” of the tax is to “change behaviour rather than raise revenue”.

Health

Funding for the health service will top €23 billion next year. One new measure will be the extension of free contraception to women aged 16-30 from September 2023. It is currently only on offer to women between 17-25 years of age. Funding to support access to IVF will also begin in 2023, but the initial extent of this is still unclear.

Some 430,000 more people will become eligible for free GP care next year. For the first time, more than half the population will be covered by either a GP visit card or a medical card, representing the biggest expansion in eligibility for decades.

Hospital inpatient fees will also be abolished for adults, representing a saving of up to €800 a year.

There will be €18 million for new drugs.

Mental health services will get an overall increase of €57.8 million, including €14 million for new measures including accommodation costs and emergency placements.

Childcare

Parents will see childcare fees fall by an average of €1,200 per year per child, which will mean a reduction in fees by a projected 25 per cent. Mr McGrath said the measure will put up to €175 per month back in the pockets of some parents next year. The deal will mean the subsidies paid to childcare providers under the scheme increase from €0.50 per hour to €1.40 per hour, for a maximum of 45 hours per week from January at an overall cost of €121 million. Minister for Children Roderic O’Gorman previously signalled that the cost of childcare will come down by an average of 50 per cent over two years.

Business

There will be about €1.2 billion for struggling businesses as part of two big schemes. The first is a €200 million scheme administered by Enterprise Ireland for larger firms that are involved in exporting and manufacturing. Under one of its strands, businesses can receive up to €2 million in financial aid.

The second scheme is targeted at small and medium enterprises. The €1 billion Temporary Business Energy Support Scheme will cover 40 per cent of the increase in electricity or gas bills, up to a maximum of €10,000 per month per business. It will be administered by the Revenue Commissioners, will be backdated to September and run at least to February.

Education

All third-level students will see a once-off reduction of €1,000 in fees this year, regardless of income and effective immediately. Next year, a family earning under €100,000 will see a permanent reduction of €500 in fees and any family earning under €62,000 will pay no more than €1,500 in fees due to changes in student grant rules. All student grant recipients will also get a double payment and PhD students will get a once-off cost-of-living payment before Christmas.

Parents of younger children will benefit from free schoolbooks at primary level under a deal struck by Minister for Education Norma Foley. She secured agreement for the €47 million schoolbooks scheme from September next year which will benefit 500,000 pupils. There will also be extra funding for school transport to help resolve the situation where 6,000 pupils have been left without a ticket. There will also be a reduction in the 24:1 pupil-teacher ratio.

Justice

Minister for Justice Helen McEntee has secured funding for the recruitment of 1,000 extra gardaí and more than 400 new garda staff to help free up frontline gardaí for core policing duties. There will also be an increase in garda overtime to help the force tackle crime and antisocial behaviour.

Defence

Minister for Defence Simon Coveney has secured an overall budget of €1.17 billion, an increase of €67 million. Some €35 million of the increase will go towards a record capital budget totalling €176 million.

There will be an additional 400 members of Ireland’s permanent Defence Forces.

There will also be funds to develop radar capability to secure Ireland’s airspace. Several projects — some of which have been flagged before — will now proceed with the funding provided, including new state-of-the-art radars, new vessels for the Navy, new aircraft for the Air Corps, more than a dozen building projects at barracks countrywide and €26 million on armour and vehicles for the Army.

Some of the projects are multiyear and will receive their first tranche of funding in 2023; for example, the radar project will be €15 million, with €12 million for building projects onshore. Funding for Navy vessels being purchased from New Zealand under a deal already announced will be €11.2 million, used to refit the inshore patrol vessels. There will be €43 million for two Casa aircraft with modern drug interdiction and fishing patrol equipment installed on recently purchased PC12s as part of a replacement project for the existing but ageing Spanish-made Casas the Air Corps operates. There will be another €47 million for pay and pensions.

Tourism and hospitality

The reduced 9 per cent VAT rate for tourism and hospitality will expire at the end of February next year. The move will disappoint many in the hospitality industry, though there had been indications the reduced VAT rate was on the way out amid allegations of price gouging by some hotels. The Government has pledged to support the night-time economy. There will be a halving of the special exemption fee required to host late-night events from €110 to €55.

Agriculture

Farmers will also be able to access the energy price support scheme on offer for businesses, up to a cap of €62,000 over the period it is on offer due to State aid rules. A new fodder support scheme will pay farmers up to €1,000 to save hay and fodder in 2023.

Mr McGrath said there will be €238 million allocated to alleviate the impact of Brexit on the sector.

There will also be a scheme for beef farmers to replace the €28 million Beef Environmental Efficiency Programme — Sucklers (BEEP-S), with a similar level of funding understood to be on offer. In relation to the new Common Agricultural Policy (Cap), funding has been secured for 30,000 places in the Agri-Climate Rural Environment Scheme for 2023 as well as extra funding for the Targeted Agricultural Modernisation Scheme, forestry and organic farming, as well as enhanced support for suckler and sheep farmers.

There will be specific funding to support the development of anaerobic digestion to produce biomethane as part of climate action measures in 2023. An €8 million grant aid scheme to support the spreading of lime will be introduced to help farmers deal with high fertiliser prices on top of the new €10 million tillage incentive scheme which Minister for Agriculture Charlie McConalogue announced at the National Ploughing Championships last week.

Mica

Revenue-raising measures are likely to include a new construction industry levy to part-fund the €2.7 billion mica redress scheme. Some sources said the Government aims to raise €80 million per year from the levy, which is likely to remain in place for the duration of a scheme that could take 10 years to complete.

Other measures

Mr Donohoe has also outlined plans to reduce the VAT on newspapers from 9 per cent to 0 per cent from January 1st, 2023.

He also said he will apply a 0 per cent VAT rate on defibrillators and that the same 0 per cent rate would apply to hormone replacement therapy, nicotine replacement and period products.

It is also expected that the tax-free threshold for voucher-based bonuses employers can give workers will be raised to €1,000.

Cigarette prices are increasing again with a 50c rise on a packet of 20, with a pro rata increase on other tobacco products.