Budget 2026 snuck up on us with all the political heat surrounding the presidential election, but will it live long in the memory?
Here’s five key takeaways from the €9.4 billion package.
Tax breaks for property are back
It’s not quite Celtic Tiger-era stuff, but the re-emergence of tax incentives for property development is a watershed moment. In some ways, it’s unsurprising: the Government has already pulled two levers available to it, on Rent Pressure Zones and apartment design standards. So it makes sense that tax was the next thing on the menu. It will be expensive. In addition to the VAT reduction on new-build apartment sales, there will be deductions and exemptions on some income (from cost rental) and construction costs. The full-year cost of all these tax measures is more than €535 million. Meanwhile, the Living City initiative – the tax incentive for refurbishing buildings in cities – has been massively expanded, and there is a promise to overhaul the derelict sites levy, replacing it with a new tax – but only in 2027.
Childcare underwhelms
Is there a more ambitious goal in the Programme for Government than bringing childcare costs down to €200 per month, per child? At a time when some families pay that much every week, an allocation of an extra €125 million for early learning and childcare looks unlikely to move the dial much on affordability, with Minister for Children Norma Foley arguing that there will instead be an increase in places, wage increases for workers in the sector and money to extend facilities. Targeting the highest cost crèches for further fee caps won’t take effect until September 2026. Also, it is understood there was a plan to increase income thresholds for income-assessed childcare subsidies – but it didn’t come to pass amid suggestions that disability was eating up significant portions of the department’s allocation. Foley’s predecessor, Roderic O’Gorman, didn’t target affordability in his first budget either but then made significant strides. The Fianna Fáil Minister will have to repeat that trick, and then some, to stand a chance of delivering.
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Welfare spreads itself thin
There’s an extra €1.15 billion in funding for new measures at the Department of Social Protection, but the allocations fall short of the Minister Dara Calleary’s well-publicised goals – most notably on core weekly welfare rates. He had sought a €12 increase but the allocation of €10 was all that could be squeezed out of the Department of Public Expenditure. Senior Government figures say it was even lower heading into last night’s pivotal meeting of Coalition leaders, when Taoiseach Micheál Martin argued to bring it up from €9 to €10. There is incremental progress on big Programme for Government commitments such as the carer’s allowance income disregard, while weekly rates of child support payments and the fuel allowance will go up. But while it’s a lot of money, it is spread thin. Expect interest groups to make this point forcefully.
Households to feel the chill
The welfare package and measures to help on energy costs will, inevitably, be compared to previous years, when there were bonanza interventions through supports that insulated households from the worst of the cost-of-living crisis. It was nearly impossible to stand over these giveaways in the face of trenchant criticism from just about every economist in the State. But that doesn’t make their removal any more politically palatable. It’s not as if the spending has completely stopped; the extension of the lower VAT rate on utility bills, coming in at a full-year cost of €254 million, is an expensive measure – but the experience of many households this winter will be more difficult than recent years.
VAT rules the roost
Add up all the three VAT changes – apartment sales, hospitality and utility bills – and you get a massive €736 million cost for 2026 alone (in a full year, it rises to more than €1.3 billion). Throw in the 2026 cost of the rent tax credit and it rises to more than €1 billion.
The tax package, originally supposed to be worth €1.5 billion, was raided to the tune of €200 million siphoned to pay for more targeted spending interventions for the most vulnerable. So the tax package was reduced to €1.3 billion. Once these big measures are paid for, there was just €300 million for other tax measures, of which the research and development tax credit accounted for €170 million. It’s not hard to see how there was no room for income tax cuts, but that won’t lessen the intensity of the attacks on the Government over a budget that won’t do much to relieve pressure on the squeezed middle.
