Typically, when you lose money on budget day, it’s because a raft of tax hikes are announced. Remember the swingeing budgets of the post-financial crash years?
In Budget 2026 however, it’s a case of little or no change being almost as dangerous to your pocket. The decision of the Government to leave the vast majority of tax bands and credits as is means that anyone who gets a pay rise next year will end up paying more tax on it, as the income tax system fails to keep up with wage growth.
“Next year, more people should expect to enter the tax net, slide into the 40 per cent bracket, and see tax credits lose their real value,” says Katie O’Neill, tax director at PwC.
“With wage inflation leading to higher wages, the absence of adjustments to tax bands and credits means that the average taxpayer will effectively pay more tax. Stagnant bands and credits are leaving taxpayers feeling the pinch.”
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Known as bracket creep, this issue arises when rising wages drive incomes into higher tax brackets. Despite the wage increase, the taxpayers only end up paying more tax, and their real purchasing power doesn’t improve.
The decision to leave tax bands as is came against a background of moderating inflation and global uncertainty. As Minister for Finance Paschal Donohoe said on Tuesday, this means that “the size of our budgets must moderate too”.
[ Budget 2026 Q&A: Submit your questions to our expertsOpens in new window ]
However, the issue is that, for many, the cost of everyday items such as food and housing continues to rise, so such an approach is likely to be of cold comfort for families across the country.
As O’Neill says, it means that families will be disappointed by the “absence of immediate measures to address the rising cost of living”.
Pity, then, that the Government never formally linked inflation with the tax system, which would mean when prices are rising, tax bands and credits automatically rise too. Cost may have been a hindrance to this, however; back in 2024, the Department of Finance’s Tax Strategy Group estimated such an approach would cost more than €1 billion a year.
This year, then, the only broadly applicable tax change is the increase in the 2 per cent universal social charge by €1,318 – which is worth about €13 a year.
And, given that PRSI is due to increase from 4.2 per cent to 4.35 per cent next October, following a similar increase this month, many families will face a real tax hike next year.
As a result, “most taxpayers are still expected to see a net reduction in their take-home pay”, says O’Neill.
Winners
It’s quite an exclusive group this year. Thanks to figures prepared for us by PwC, it’s clear that most of our budget families are going to be worse off next year, due to the increase in PRSI. And the real value of any wage increases will be less than expected, due to the failure to keep bands and credits in line with inflation.
So, not a lot to look forward to, then.
One of the big winners – and that’s big compared with everyone else – are pensioners. Thanks to the €10 weekly increase in the State pension, our pensioner couple, both of whom qualify for the full increase, will see their income increase by more than €1,000 next year.
Winners
- Pensioners Leslie & Kitty, income of €53,127: +€70 net a month
- Minimum wage earner Rebecca, on earnings of €29,432: +€92 net a month
And they will also keep their reduced rate of USC, given the extension in the medical card-related relief until 2027. Moreover, this couple are exempt from PRSI, which means that their net monthly income will increase by about €70 next year.
Our other big winner is our minimum wage earner Rebecca. Next year, thanks to the increase in the minimum wage, by 65 cent to €14.15 an hour, Rebecca will see her earnings increase from €28,080 to €29,432. She will also benefit from the decision to increase the ceiling for the USC 2 per cent rate band by €1,318 to €28,700.
This means that although she will still have to pay more PRSI next year, on a net basis, she will get to keep €92 extra a month.
[ Anti-populist budget offers little for middle income earnersOpens in new window ]
Losers
No one is going to lose significant sums next year due to having to pay more tax; but there are decreases in take-home pay on the way nonetheless.
Take Tom, our single parent earning €36,000. He will save €13 next year, due to the USC cut. However, he’ll pay an extra €41 in PRSI, so his take-home pay will be about €2 less a month, at €2,797.
Similarly, our high-earning couple, Mark and Linda, on income of €325,000 (some of which comes from a rental property), will get to keep €1 less a month next year. And it would have been more, if not for the increase in the residential premises rental income relief, which benefits smaller landlords and will increase from €800 in 2025 to €1,000 in 2026.
Our single-income family Jian and Sean, on earnings of €47,500, will benefit somewhat from the USC change, but will still end up losing €3 a month due to the PRSI increase.
Losers
- High-earning couple Mark and Linda, on income of €325,000: -€1 net a month
- Tom, single parent earning €36,000: -€2 euro net a month
- Single-income family Jian and Sean, on earnings of €47,500: -€3 net a month
- Dual-income couple Ekene and Alison, earning €175,000 combined: -€10 net a month
And Ekene and Alison, who earn €175,000 combined, will be down €10 a month in their after-tax income.
So, no great decreases – but the real cost is likely to be a higher tax burden on any potential pay increases next year.
And the budget might be one of regrets for many of our families, who may have hoped for specific measures.
Our single-income family, for example, Jian and Sean, who let out some of their bedrooms, might have hoped for an increase in the rent-a-room relief.
Pensioners Leslie and Kitty may have hoped for an increase in the parent-to-child inheritance tax threshold.
Single parent Tom, who is renting a two-bed apartment, might be relieved the rent credit has been extended until end-2028 – but he is likely to have also wanted an increase from the level of €1,000 a year.
He is also likely to bemoan the decision not to change Help to Buy. Despite double-digit price growth since 2017, the cap on property prices which applies under the scheme remains at the €500,000 level – even though recent CSO figures show that the average house price in Dublin in July of this year was in excess of this, at some €588,057.
Those of our families with investments will welcome the decision to reduce the rate of tax that applies to products such as life-wrapped funds from 41 per cent to 38 per cent. However, this is still in excess of Dirt, which applies at 33 per cent.
And, although minimum wage workers such as Rebecca will see their income increase next year, they will be hit on another front when the auto-enrolment pension savings scheme comes into play.
Figures from Michael Rooney, tax partner at EY Ireland, show that such a worker on a 39-hour week will see the benefit of the increase shrink to just €542 a year, when taxes and the auto-enrolment contribution are factored in.
