As Ireland prepares for Budget 2026 on Tuesday, October 7th, the Government faces a pivotal moment. The country is navigating a complex global landscape marked by shifting international tax rules, rising protectionism, and intensifying competition for foreign direct investment (FDI). This budget comes amid newly imposed 15 per cent tariffs on exports to the United States, alongside ongoing threats of higher tariffs. Domestically, persistent housing shortages and the urgent need to accelerate sustainable economic growth demand bold and strategic policy responses.
In July, Minister for Finance Paschal Donohoe and Minister for Public Expenditure and Reform Jack Chambers unveiled a €9.4 billion fiscal package. However, the Summer Economic Statement, which outlined this package, was released before the recent tariff agreement. It detailed a €1.5 billion tax package alongside a €7.9 billion spending package—a 7.3 per cent increase on 2025.
Notably, following the tariff agreement, Minister Donohoe publicly stated that the tax package would not increase in size while Minister Chambers outlined that Budget 2026 will not include one-off cost-of-living payments, emphasising the Government’s commitment to decisions “sustainable with global uncertainty.”
While much speculation surrounds the contents of the tax package, one clear priority is that Budget 2026 presents a rare opportunity to implement measures that protect Ireland’s competitiveness and establish a foundation for sustained prosperity. Deloitte Ireland’s pre-budget submission, Scaling Smarter, offers a comprehensive set of recommendations aimed at tackling these challenges and unlocking the country’s full economic potential.
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Navigating global uncertainty with strategic tax policy
Ireland’s open, globalised economy has thrived on attracting multinational corporations. However, recent developments, including changes to the international tax system, the EU-US trade framework with new tariffs, and geopolitical tensions, pose risks. The government must recalibrate tax policy to maintain Ireland’s appeal while fostering genuine domestic growth.
Research and development (R&D) activities are the cornerstone of Ireland’s future prosperity, driving innovation, economic growth, and regional development. The R&D tax credit is a fundamental tool fostering innovation in indigenous companies and encouraging FDI.
Ireland’s economic landscape has evolved. With a highly skilled workforce, the focus must shift from job creation to fostering the next wave of innovation and intellectual property (IP). Unlike decades ago, when building employment was paramount, Ireland’s priority now is maintaining leadership in the knowledge economy.
Many Irish businesses engaged in R&D find some work stages cannot be completed entirely in-house or domestically and must be outsourced. However, current tax law limits relief on outsourced R&D costs, especially when carried out by related parties abroad. Relief for payments to universities or third parties (not connected persons) performing qualifying R&D in relevant Member States is capped at the greater of 15 per cent of the company’s own R&D expenditure or €100,000. Crucially, expenditure on R&D outsourced to related parties is excluded from the R&D tax credit regime, even when the Irish company manages and directs the R&D and is the principal IP owner.
The tax law should be amended to include related party expenditure within the R&D tax credit scope, capped at 100 per cent of the company’s internal R&D spend. This amendment would ideally include safeguards ensuring only IP owners benefit. Such reform would align Ireland with international best practices, enhance competitiveness, and strengthen Ireland’s position as a global innovation hub.
Accelerating domestic direct investment
While FDI remains vital, Ireland’s resilience depends on boosting domestic direct investment (DDI). Targeted tax incentives are needed to stimulate investment in SMEs, the backbone of regional economies and employment.
One innovative proposal is a tax-efficient SME financing model encouraging individuals to lend money to SMEs. By taxing interest income at the standard 20 per cent rate instead of marginal rates up to 55 per cent, this could unlock new finance sources and channel idle capital into productive uses.
A crucial amendment is a reduction in the headline capital gains tax (CGT) rate from 33 per cent to 20 per cent. This would align Ireland with EU norms, enhance the enterprise environment, and encourage entrepreneurship and business continuity. Given CGT receipts account for only about 2 per cent of total tax revenue, the fiscal impact would be minimal, while the economic benefits could be significant.
There is also a need for a graduated CGT tapering relief for entrepreneurs, reducing the CGT rate progressively based on ownership length and active involvement. This would incentivise founders to scale businesses domestically rather than seeking early exits or relocating abroad, rewarding long-term commitment and positioning Ireland as a premier entrepreneurial destination.
Complementing these reforms, the tax code must be modernised to support homegrown businesses. This could include simplifying close company surcharge rules, reviewing entrepreneur relief limits, increasing retirement relief caps, and a reduced rate of stamp duty for transfers of commercial property within families. Together, these changes would foster investment, succession planning, and reinvestment in Irish enterprises, strengthening the domestic economy.
Tackling the housing crisis with targeted incentives
Ireland’s housing shortage is a critical obstacle to growth and competitiveness. Lack of affordable, appropriate housing restricts talent attraction and retention, especially in technology and financial services.
Strategic tax reliefs and incentives to increase housing supply in the right locations and for the right purposes are needed. These should include reliefs for developers building or renovating student accommodation near universities, senior co-living spaces for an aging population, employer-provided housing, urban apartments, and housing along strategic transport corridors.
To ensure effectiveness and public trust, these incentives should be targeted, time-bound, transparent, and regularly monitored. Such a calibrated approach would stimulate construction and repurposing activities meeting Ireland’s diverse housing needs without creating long-term fiscal burdens.
Driving innovation through decarbonisation and AI incentives
As global markets prioritise environmental responsibility and aggressively using fiscal incentives for decarbonisation, Ireland risks falling behind without incentives for businesses to decarbonise their operations. A decarbonisation tax credit is needed to support companies investing in emissions-reducing technologies and practices. This ‘carrot’ approach would complement the ‘stick’ of carbon pricing and accelerate voluntary corporate climate action.
Similarly, a new tax credit for investments in artificial intelligence (AI) and digitalisation would support expenditure on safe AI development and implementation. Modelled on the existing R&D tax credit but with a tailored science test and lower qualification thresholds, this credit would encourage AI adoption, vital for maintaining Ireland’s competitive edge in the digital economy.
Now is the time for bold decisions
Ireland stands at a crossroads. The global economic environment is volatile and uncertain, but this also presents an opportunity for decisive action. Budget 2026 must be more than a routine fiscal exercise; it should catalyse transformative change.
The time to act is now. Ireland’s future economic resilience depends on bold, well-targeted policies that empower entrepreneurs, attract investment, and build a sustainable, inclusive economy.
For further Budget 2026 insights visit deloitte.ie/budget.
