This time last year the outgoing government engaged in a bout of pre-election populism, spreading the cash around to households through tax cuts, welfare increases and a range of once-off payments. This year’s Budget 2026 package, the first of the new Coalition, is the exact opposite. It is the anti-populist budget, offering little to middle-income earners and no once-off sweeteners.
After last year’s splurge, this budget asks households to go “cold turkey” – and many will notice the absence of personal tax reliefs, energy credits and double child benefit weeks in their pocket. Last year’s package delivered €1,000 to many single employees when tax cuts and once-off payments are combined and €2,000 plus to families.
Once-offs are gone this year and the only general tax change is a trim to universal social charge (USC) which will save most households €13 – in a year. And for most this will be more than wiped out by a small pay-related social insurance (PRSI) rise.
Meanwhile, many households are getting letters from the Revenue Commissioners reminding them of the need to revalue their home for local property tax, with many facing somewhat higher payments. The public reaction to all this will, to put it mildly, be worth watching.
RM Block
Why has this happened? As ever we need to follow the money. The biggest elements in the tax package are a range of measures to try to spur construction and particularly apartment building‚ the VAT rate cut for food-based hospitality and some other business measures.
For a Government in the first year of its new term, the logic is to protect jobs and investment and spur apartment construction in time to see results before the next general election. If this is to happen, planning reforms and infrastructure delivery will have to be delivered as well. The budget has just increased this Government’s bet that it can turn housing delivery around.
This left practically nothing for a personal tax package. The Programme for Government had promised to index personal tax credits and the tax bands for inflation if the public finances remained strong – this is not happening, though Minister for Finance Paschal Donohoe said he hoped it would be possible in future years.
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For next year the income tax burden will rise a bit as people get wage increases – and the PRSI rise offsets the small USC cut. The only small concessions were an extension in the renters’ tax relief and the extension of mortgage tax relief for two more years.
Economists may applaud the absence of personal tax cuts, given the risk of economic overheating. It will tighten up consumer spending a bit. And it means the overall tax burden on the economy as a whole will remain fairly constant, when the VAT and other cuts elsewhere are added in. But, to use the phrase from Yes Minister, it is a “courageous” decision.
Donohoe will know that this is not going to be popular. He argues that adding a personal tax package to the other measures would have been imprudent. This is true, but the point is that the other measures were given priority. Sinn Féin, in particular, will try to make hay here. Its finance spokesman Pearse Doherty was framing it as households being forgotten “to look after those on top”.
There were also choices made on spending. And here there are political dangers too, as the Government struggles to progress on promises such as cutting the cost of childcare to €200 a month during its term.
The backdrop is an attempt by the Government to tighten up on current spending growth. This is to leave room for more investment spending and to try to control runaway departmental budgets that have exceeded budget targets each year.
That cutting spending growth to 6.5 per cent next year is seen as difficult tells us a lot. It also reflects the pressures from a rising population, requiring more hiring and higher spending across the public service, much of it provided for in the package.
Welfare and pension increases came in at €10 a month, though more was given to families on welfare with children. Chambers has promised to reform public spending delivery – he is right to aim to do so, but previous ministers will warn him that this is not easy.
Is this the shape of budgets to come from this Coalition for the rest of its term? Only in part. Higher State investment will continue to be a dominant factor. In terms of tax, more relief will be directed back at households, if the cash is there. Whether it will be depends, as ever, on the ongoing health of corporate and income tax revenues, both budgeted to rise again next year.
Corporate taxes remain vulnerable to the policies of the US president and although the EU-US trade deal provides some protection, the cost to the US exchequer of tax planning by US multinationals – which benefits the Irish exchequer hugely – remains a key vulnerability.
Donohoe argued strongly that putting money aside in two funds for the future – which will rise to €24 billion by the end of next year – and running a significant budget surplus, are substantial protections. This is true. But the problem is the extent of Ireland’s exposure to what the Department of Finance calls windfall corporate taxes – in other words, payments not related to activity in the Irish economy.
Without these, the budget would, on Department of Finance estimates, be in deficit to the tune of a large €13.5 billion next year. With spending pressures also on the rise from a growing and ageing population, the choices in future budgets are unlikely to get much easier. The days of the big giveaway budgets are behind us.
