A variety of climate related tax measures were announced in the Budget in addition to the Government demonstrating long term commitment to funding climate positive projects by establishing a new Infrastructure, Climate and Nature fund.
By its own measure, this is the first climate negative Budget since the Government began measuring the green impact of budgets in Budget 2022. The climate positive impact of the measures introduced are greatly outweighed by the extension of the 9% VAT rate for gas and electricity for an additional 12 months and the extension of the temporary excise rate reduction for diesel and petrol cars until March 2024. In the accompanying analysis provided by the Department of Finance, it is noted that these climate negative budget measures are short term, and designed to address cost of living concerns, whilst the climate positive measures should have more long term impact.
Accelerated capital allowances – Energy efficient equipment
Accelerated capital allowances (‘ACA’) are available to companies and unincorporated businesses who incur capital expenditure on specified items of energy efficient equipment which are used for the purposes of a trade. Instead of receiving standard wear and tear capital allowances over eight years, ACAs are available in year one where the qualifying conditions are satisfied.
The ACA scheme was due to expire on 31 December 2023. However, in his Budget speech, the minister announced that the ACA scheme will be extended for a further two years to 31 December 2025.
Microgeneration of electricity
Microgeneration of electricity is the small-scale production of electricity by consumers who generate electricity in their own homes for their own consumption and sell the excess electricity produced to the grid.
Under existing rules, where an individual who purchases electricity for their own use is able to generate electricity at their sole or main residential premises in Ireland using renewable, sustainable or alternative forms of energy and sell any excess electricity back to the grid, then the profits or gains arising from such sales up to an amount of €200 will be exempted from income tax, USC and PRSI.
The term renewable, sustainable or alternative forms of energy means energy used in the production of electricity, which is mainly sourced from one or more of wind, hydro, biomass,
waste, biofuel, geothermal, fuel cells, tidal, solar and wave. The exemption does not apply to profits generated from a trading activity.
The minister confirmed a €200 increase in the income disregard/exemption limit. The new income disregard of €400 will apply with effect from 1 January 2024 and the exemption will continue to be available until 31 December 2024.
Battery electric vehicles - VRT relief
Series production passenger cars and commercial vehicles (being category A and B vehicles for VRT purposes) that are powered only by an electric motor and registered before 31 December 2023 are eligible for relief from VRT up to a maximum amount of €5,000 on vehicles with a value of up to €50,000.
The minister announced in his Budget speech that this VRT relief will be extended by two years to 31 December 2025.
New investment funds
The Infrastructure, Climate and Nature Fund
The Minister for Finance announced that a fund, The Infrastructure, Climate and Nature Fund, will also be established by the State in 2024. The objective of this fund will be to ensure that Governments of the future can continue to finance capital spending even during an economic downturn.
Recognising the climate challenges affecting all parts of society, the fund will also have a climate and nature component, worth over €3 billion, the aim of which is to help the achievement of carbon budgets though capital projects where it is clear such carbon and climate targets are not being reached.
An initial contribution of €2 billion will be made to the fund in 2024 following the dissolution of the National Reserve Fund and it is proposed that the fund will grow incrementally thereafter by €2 billion per annum until it reaches €14 billion plus interest accrued.
Ownership of the fund will be vested in the Minister for Finance and the fund will be managed and controlled by the National Treasury Management Agency and be subject to an investment policy and investment strategy.
The Draft Scheme of the Bill relating to the establishment of The Infrastructure, Climate and Nature Fund will be published shortly after Budget Day.
The Future Ireland Fund
A key element of the Government’s fiscal strategy involves the establishment of a second fund, The Future Ireland Fund, a new State savings fund. The Future Ireland Fund will be established in 2024 using part of the corporate tax receipts considered to be wind fall in nature.
The establishment of the new fund will enable the Government to pre-fund the fiscal pipeline costs that will be incurred by the State in the future, particularly in relation to population ageing and the digital and climate actions.
In his Budget speech, the minister announced that the State will invest 0.8 % of GDP annually into The Future Ireland Fund from 2024 to 2035, equating to a sum of approximately €4.3 billion in 2024. In addition, the State will transfer seed funding of just over €4 billion into the fund in 2024 on foot of the dissolution of the current National Reserve Fund.
Ownership of the fund will be vested in the Minister for Finance and the fund will be managed and controlled by the National Treasury Management Agency and be subject to an investment policy and investment strategy.
The Draft Scheme of the Bill relating to the establishment of The Future Ireland Fund will be published shortly after Budget Day.
Queries? Get in touch
The measures announced in Budget 2024 will affect businesses and individuals across Ireland. If you have any queries on the impact of these changes for your business, please contact Paul O'Brien or Michael Hayes of our tax team.
We'd be delighted to hear from you.
Paul O'Brien
Partner,
KPMG in Ireland
Michael Hayes
Partner, Global Head of Renewables
KPMG in Ireland
