This week’s Summer Economic Statement provided two pieces on information in terms of the budget tax package – first its overall size, which will be €1.5 billion, and second, some hints from Minister for Finance Simon Harris on priorities.
Armed with this – and with some of the inevitable maths involved – what can we tell about the Budget 2027 tax package?
It will not be that large
A €1.5 billion tax package may be slightly in advance of the €1.3 billion in last October’s package, but it will only allow for limited enough change. Harris has talked up the need to ensure that “work pays”, but – unless he is prepared to raise tax elsewhere – the resources at his disposal will only go so far.
Remember that the €1.5 billion is a net figure – in other words, raising new revenue can allow scope for more “giveaway” elsewhere. Also remember, of course, that raising new taxes is generally not very popular.
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It will concentrate on middle earners
Harris gave a clear indication in the press conference about the Summer Economic Statement on Wednesday that he would concentrate a significant amount of the available resources on increasing the income level at which people enter the higher 40 per cent income tax rate.
Currently, this is €44,000 for a single employee and €53,000 for a married couple with one income.
A €2,000 increase had been speculated on – a 4.5 per cent rise which would be a bit in advance of expected 2027 inflation of about 3 per cent (this figure could rise if the Gulf crisis worsens). If the band is not adjusted for inflation, then many getting wage increases will see a slightly higher proportion of their income going in tax.
[ Budget 2027 expected to be tightest budget since before Covid-19Opens in new window ]
The band was not adjusted this year. To make up for this and account for 2027 inflation as well – as the ICTU is seeking – would require a rise of about €3,000 in the band. Each €1,000 increase costs €230 million, according to Revenue figures, which have not yet been updated for Budget 2027.
Interestingly, Harris mentioned at this week’s press conference that many other countries index the tax system for inflation, meaning adjustments are automatic. Some do the same for welfare. This makes sense, as effectively the real – or inflation-adjusted – value of tax bills and welfare payments are just being maintained. Irish governments have always resisted doing this, presumably to keep some flexibility in the budget, and also to be able to present tax and welfare changes as “giveaways”.
In October’s budget, with most of the resources going on extending the band, we can identify the biggest winners – they are those earning enough to fully benefit from this move.
Looking back at Budget 2025, when there was a €2,000 extension of the band and some other changes to tax credits and the USC, a single person earning €40,000 gained €369 for the year, while one earning €55,000 gained €904.
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A couple on one income earning €50,000 gained €584, while a couple earning €55,000 got €1,029.
We will have to see what other changes apart from the standard band extension are included to see how the Budget 2027 figures compare. But this jump in gains as the band extension kicks in will again be a feature.
There will also be something for lower earners
So what about the group of lower middle earners who do not earn enough to gain from an extension of the standard rate band – the income level at which people become liable for the higher 40 per cent rate? The budget needs to give something to them, too.
Harris appeared to hint at the press conference that increasing tax credits – cash amounts which are deducted from tax liabilities – is the likely way to do this. PAYE employees have two main credits – as do the self-employed. As well as helping lower earners, increasing credits also gives cash back to all income tax payers.
Universal social charge (USC) changes are another way to target lower earners. But as Harris wants to concentrate on the standard rate band, his scope here may be limited. Or he could introduce a package similar to that of Budget 2025, which also included significant USC relief.
The signals from the press conference this week suggested a focus on increasing the income level where the higher rate kicks in, which is the area where the Irish income tax system is most out of line internationally.
Many of the lowest earners pay little or no income tax, with about 1 million of the 3.5 million “taxpayer units” having no income tax liability. Harris also referred to the large number of people paying no income tax or USC at the press conference this week – this has effectively resulted from the policy of successive governments to lift the income levels to which USC applies after its introduction following the financial crash.
However, the Minister did not suggest the policy would be reversed, rather saying that his intention was not to narrow the tax base further.
Tax increases will be limited
There will be money raised in some areas, to increase the leeway on income tax. But the amount is likely to be limited enough. While it is a bit of a nonsense – happening every year – the renewal of the €200 million bank levy is counted as “new money”. There will also be some money put in for improved “compliance” – €50 million was added for this last year.
Excise on cigarettes may also be hiked again. An interesting point will be whether the proposed annual rise in carbon tax – which adds to fuel costs for consumers – goes ahead. It raises a hefty €120 million or so. Not doing so would leave a hole in spending budgets, as some of this money is allocated to specific uses. Can money be found elsewhere?
On other issue which tends to be forgotten is the gradual upward march in PRSI which started a few years ago, to underpin the social insurance fund. Rate are due to increase across the board by 01.5 per cent, raising some €250 million and taking a few euro back from any tax package gains.
Other costs will add up
On the other side of the ledger, the Minister also faces additional costs. The Government has hinted that it will do something on inheritance tax – which could involve change in the tax-free amounts, or the 33 per cent tax rate.
A particular focus has been on the tax-free amounts which apply to nephews and nieces and other “blood relatives” who are not direct family members, which is €40,000. And the €20,000 which applies in most other cases.
The overall cost may not be too high but it will form part of the arithmetic. So may any further extension of the renters’ tax credit. And some measures for business will also have to be paid for.
The bottom line
An income tax package of more than €1 billion is likely to feature in the €1.5 billion tax package. Something in the €1.1 billion to €1.2 billion range may be on the cards.
[ €1.5bn to be set aside for tax package for workers in summer economic statementOpens in new window ]
This would allow for an increase in the tax band which would be in advance of inflation for 2027 – meaning a small inflation-adjusted gain. Harris may flag further planned rises in the years ahead.
Some increase in tax credits is also likely. Those who earn enough to qualify are likely to gain €1,000-€1,200 plus per annum – a two-income couple will top €2,000 in gains. Lower earners will get less in cash terms. But how this adds up in terms of percentage gains across the income distribution remains to be seen.
