Budget 2026: a balancing act between tax cuts and targeted support

Budget 2026 is expected to contain an overall package of €9.4 billion. Of this, €7.9 billion will be available for spending measures, leaving some €1.5 billion available for tax cuts.

The heavily lobbied cut to the hospitality VAT rate to 9% is touted as the largest tax measure to be included in the Budget. Aimed at supporting struggling restaurants and pubs, the estimated full-year cost exceeds than €650 million – a substantial portion of the €1.5 billion earmarked for tax measures. There already appears to be some suggestion that certain aspects of hospitality will be exempt from the regime.

On personal taxation, the Programme for Government commits to avoiding an increase in the income tax burden. How it achieves this – whether through measures such as raising the entry point for the higher rate of income tax and cuts to the Universal Social Charge – remains to be seen. History suggests that adjustments to tax bands and USC thresholds, rather than significant increases in credits, would be the likely path. 

Meanwhile, cost-of-living measures – in the form of electricity credits – are unlikely to be granted. These were only ever intended to be temporary measures and not an annual benefit. These measures, while appropriate at a particular point in time, have become expensive and a political issue. It is likely that any cost-of-living support measures will be targeted and delivered via increased fuel allowance payments. Hopefully, the 9% VAT rate, which currently applies to electricity, will continue to apply in 2026 and not revert to the higher 13.5% rate.

Housing measures are again expected to focus on apartment development. One potentially contentious way of incentivising development is tax cuts for developers. There is speculation that a reduction in VAT may be applied to the sale of new apartments. A reduced rate of 9% has been suggested, down from the current rate of 13.5%. It would be interesting to see if such a measure would apply solely to apartments or if it would also apply to mixed residential developments. Equally, it will be interesting to determine if this will apply to developments already completed and on the market.

The rent tax credit looks set to be retained and will likely be modestly increased. Increasing the credit by €100 for a single person and €200 for jointly assessed couples is estimated to cost €20 million. Changes were made in prior years to expand who claimants may be. It is unlikely that any significant changes will be made.

Finally, to counterbalance the dependence on multinationals, we would expect (and hope) to see measures to support the domestic economy. This should be much broader in scope than the reduced VAT rate for the hospitality sector, helping to counterbalance Ireland’s heavy reliance on multinational investment.