Budget 2027, to be presented on October 6th, is due to involve a package of €8.5 billion, with €7 billion in additional spending and €1.5 billion in tax reductions.
The Government has insisted that these figures will be held to. However, we have seen in recent years how so-called “once-off” measures can be added on. The cost-of-living issue will be a key focus across the whole package.
Spending – the main issues
While the €7 billion figure is large, an increase of about 6 per cent on this year, much of this money is already effectively allocated to various budgets to keep pace with inflation.
There will, however, be key decisions to be made in areas such as health – which is already running well above budget for this year – and education. And, of course, in welfare, one of the mainstays of any budget package, with decisions to be made on levels of increase.
RM Block
Tax – the main issues
The €1.5 billion package leaves limited enough room for manoeuvre and the Minister for Public Spending, Jack Chambers, has said that reductions in income tax will be “modest”.
If most of the money were directed to income tax cuts it would allow the system to be adjusted for inflation and higher wages but not much more than that.
Minister for Finance Simon Harris has suggested that some money could be raised in tax increases to help pay for bigger reductions – a packet of cigarettes is set to move to €20, though extra taxes here will be limited.
But Ministers will also have to find money to make some adjustment on inheritance tax and on some new business measures. Harris will have to write in some cost for his new savings scheme.
Social protection
How much will be allocated to social protection – or welfare – will be a key issue. It is hard to see an increase in main weekly rates below the €10 announced last October – with campaigners such as Social Justice Ireland looking for a €15 rise. The question is whether the Coalition will find more cash to go above the 2026 increase.
There will also be specific targets. Promises to address child poverty are likely to see additional payments for people on welfare with children – known as child support payments – and possibly also expansions of the Working Family Payment, which is paid to lower-income families on lower earnings.
The much-discussed second tier of child benefit payments will, however, not happen this year.
Energy supports
A key focus will be additional supports for those struggling with energy bills through channels such as the fuel allowance scheme or household benefits packages, which help lower-income families meet daily bills.
A Government taskforce has been looking at this area of helping households to deal with energy costs, so this is one to watch in terms of possible new approaches.
As part of this, the budget is also likely to have something to say on encouraging retrofitting in older homes.
So far the Government has resisted the idea of new temporary supports to households for higher costs through energy credits, saying it favoured more targeted, permanent measures. However, a surge in energy costs could yet put some form of credits back on the agenda.
Energy taxes
All things energy are hugely politically sensitive. Annual carbon tax increases had been due to be given the go-ahead, as part of a planned series of increases up to 2030.
A postponed increase in taxes on home heating products which had been due to come into effect earlier this year must also be dealt with. The additions to the cost of petrol and diesel at the pumps is modest enough – 2 to 2.5 cent per litre.
But, given the high existing cost, there is a strong possibility that the carbon tax hikes will be put on hold. In turn this raises questions for spending, as revenue from this tax pays for areas such as retrofitting and certain fuel-related welfare supports. There may be enough leeway from current funds to deal with this.
It remains to be seen what Harris says on excise taxes on fuel. These were reduced in two steps earlier this year and the first step to the return of normal rates is due to take place in November. Harris could take a wait-and-see approach on budget day – though, given recent price rises, this looks difficult – or push the date forward again.
Both Harris and Taoiseach Micheál Martin have promised help for those reliant on home heating oil, or kerosene, which has jumped in price again, rising more than 50 per cent over the past year.
The increase in carbon tax due in spring this year on kerosene was already postponed until October 14th. Presumably this will not go ahead.
The budget may also signal further measures, perhaps cutting the VAT on this fuel from 13.5 per cent to 9 per cent. The existing carbon tax on home heating oil could also be cut, or a signal sent that there will be no rise in spring 2027.
Disability supports
The Programme for Government includes a commitment to introduce a permanent cost-of-disability payment to reflect the higher costs disabled people face in their daily lives. Minister for Social Protection Dara Calleary had a public consultation on it earlier this year.
A move is expected in the budget. Social Justice Ireland has said a €20-a-week payment would cost €242 million in a year.
Income tax
An increase in the level at which the higher 40 per cent income tax rate kicks in looks certain. Having avoided this last year, the Government has promised to act. The current rate is €44,000 for a single person and €53,000 for a married couple.
An increase of €2,000 would be slightly ahead of inflation. It would be worth €400 a year to someone who earns enough to get the full benefit.
Harris may also indicate that the Government intends to increase the level at which the higher tax rate applies in successive budgets for the rest of its term.
For this budget, as many lower earners would gain nothing from an increase in the level at which the higher rate kicks on, there are also likely to be increases in tax credits and Universal Social Charge (USC) changes too. These would benefit all income tax payers, but give the highest proportional gain to the lower earners.
There may also be a further increase in the rent tax credit, which is worth up to €1,000 per year to a single renter and €2,000 to a couple. At the recent Fine Gael think-in, Harris said he was “hopeful we can do something” on this.
With interest rates on the up, there will be a focus on whether the mortgage tax credit will be renewed. This year it was worth 50 per cent of the increase in mortgage interest paid in 2026 versus 2022, capped at a maximum tax credit of €625.
Inheritance tax
There have been hints from all sides of Government that there would be some move here, though what it will be remains unclear. Pre-budget documents drawn up by civil servants warned of the high cost of fundamental reform of the tax, such as aligning the tax relief for wider groups inheriting to the levels which currently apply to children.
The Category B threshold of €40,000 which currently applies – generally – to gifts to siblings, nieces, nephews, grandchildren and grandparents could be in line for a rise, to lower the bill to those inheriting from couples who don’t have children.
The Government may also consider some rise in the Category A threshold of €400,000 which applies to children inheriting from parents. The Category C threshold of €20,000, which applies in other cases, may also be looked at.
Another option is to look at the 33 per cent capital acquisitions tax – or inheritance tax – rate. But signals are pointing to incremental change in this tax rather than a big shake-up.
Capital Gains Tax
Senior Ministers have also referred to the possibility of capital gains tax moves, and Harris has said that the 33 per cent rate is “objectively too high”. It is not clear whether this will be a target for this budget, with resources focusing on income tax. Short of a cut in the general rate, there could be an extension of the entrepreneur relief which offers a lower rate of 10 per cent on the sale of business assets subject to certain conditions, including a €1.5 million limit on qualifying gains.
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Savings Scheme
The Minister for Finance is due to announce key details of his savings scheme. The outline shape has already been revealed – it will offer tax-free investment options for households in stocks and shares subject to certain limits. The key question is what these will be. The budget is due to reveal three key things.
The first is a limit capping what individuals can put in each year. The second is the total level of a savings fund that will remain free of all taxes. The third is the level of a new special tax rate that will apply to the assets in the fund above this limit – this will be low, but as it may apply to a significant amount of money, it will still be important in assessing the attraction of the scheme.
In all cases funds invested in the scheme will not be charged any of the other taxes currently applying to investments.
Childcare
As part of its cost-of-living package, the Government has promised further help for parents. Its programme promises to cap monthly costs at €200 per child, with progress made over the term of the Coalition. Higher investment to providers under the so-called core funding scheme was announced to apply from September, together with weekly fee caps for parents.
Minister for Children Norma Foley has been promising further progress in what she hopes will be a “breakthrough budget” for childcare, and providers are hoping for a further hike in core funding and a loosening of the rules on fee increases.
Business
The Government has made general promises on supporting businesses, but what could happen remains unclear. An extension of research and development relief could be one potential avenue, as well as measures aimed at encouraging investment in domestic industry.
