Progress vs prudence: Government attempts balancing act in Budget 2026

Press release

Progress vs prudence: Government attempts balancing act in Budget 2026

07 Oct 2025

Budget 2026 was a delicate balancing act between playing it safe and providing further stimulus for the economy.

Against a backdrop of tariff tensions, geopolitical instability, and diverging growth paths across major economies, it arrives at a time when uncertainty is the defining feature of the global economy this year, according to Minister for Finance Paschal Donohoe.

While strong economic indicators such as high levels of employment and a corporation tax surplus endure, consistent warnings about the dangers of spending those volatile corporate-tax receipts provide a counterpoint.

In response, rather than repeat previous populist giveaways, the Government has tried to strike a long-term approach, putting an emphasis on investment, infrastructure and enterprise. It  has shown a commitment to delivering on housing and infrastructure, while easing the burden on businesses and promoting an entrepreneurial environment.    

Key highlights:

Housing as the Budget’s centre of gravity:

• The 9% VAT rate cut to be introduced for new completed apartments is the Budget’s most consequential housing intervention. Together with the expansion of the Living City initiatives, this forms part of a package of measures aimed at increasing investment and unlocking supply in the housing market. However, as Grant Thornton has consistently highlighted, tax measures alone won’t build homes. A joined-up delivery model will.
• A wider package of measures aims to increase investment and unlock supply in the housing market. These include extensions to stamp duty refunds and the introduction of a new Derelict Property Tax, both designed to stimulate residential development. To boost affordable housing, a corporation-tax exemption will apply to rental profits from Cost Rental Scheme homes from 8 October 2025, while developers can claim an enhanced deduction on qualifying costs for building or converting apartments, targeted relief to offset rising construction costs.

Targeted business support:

• The increase in R&D tax credits from 30 – 35% is good news for both the FDI and indigenous sectors alike. It further enhances Ireland’s reputation as a knowledge economy. It also mitigates some of the adverse impacts of recent US tax changes aimed at disincentivising R&D carried out outside of the US.
• While the extension of the SARP (special assignee relief programme) will be welcomed, the increase in the minimum salary entry level is disappointing. More positively, the Finance Bill is expected to contain a simplification of the requirements to avail of the relief, which is much needed.
• The changes to the lifetime limit for Capital Gains Tax (CGT) Entrepreneur Relief, increasing to €1.5 million from 1 January 2026, was a welcome surprise. Entrepreneurs disposing of qualifying business assets will now be able to avail of a reduced CGT rate of 10% on gains up to €1.5 million, providing for a potential tax saving of €345,000 given the standard CGT rate of 33%.

Areas where the Government could have gone further:

• The 9% VAT rate for food and catering will help protect employment and business viability, but the timing of the implementation for businesses in these sectors, already struggling with high costs such as inflation, sick pay obligations and pension auto-enrolment, a nine-month wait may outweigh many of the intended benefits.
• Aside from some USC relief for those on the National Minimum Wage, the Minister didn’t announce any enhancement to the income tax regime. Since tax credits and bands are not tracking inflation, the majority of working people will see an increase in their personal tax burden. Our calculations show that, in last year’s budget, excluding child benefit, a married couple with two children earning €45,000 each was €1,850 better off. This year, that same couple is €75 worse off per annum.
• Despite some changes to the Group exemption thresholds for Capital Acquisitions Tax, the lack of an increase in the tax-free threshold is disappointing, given the continued rise in property values and changing family dynamics. Similarly, the lack of adjustments to the rates applicable to gifts or inheritances, which remain at 33%, will also be seen as a let-down.
• From a financial services perspective, a reduction in the exit tax rates for Irish and offshore funds, Exchange Traded Funds and life assurance policies is welcome, but a 38% rate is still higher than other withholding rates. Budget 2026 appears to be a missed opportunity, and yet again, the FS and FinTech sectors have to await the outcome of a number of new consultations, feedback statements and implementation plans in relation to the taxation of interest and withholding tax.