There is no doubt that Budget 2026 will not be as popular as last year’s pre-election giveaway. The key question now is can the Government absorb short-term pain with voters by focussing attention and resources on critical delivery areas such as housing supply and economic stability?
Notwithstanding political distractions this week, the Government entered Budget 2026 with a healthy overall package of €9.4 billion. This translated into €8.1 billion of spending increases and €1.3 billion for taxation measures. The final tax package was reduced by €150 million to facilitate additional spending in targeted supports for the most vulnerable. However, reservations persist on both the control of public spending and continuing overreliance on windfall corporation taxes for day-to-day expenditure.
The Government’s own Summer Economic Statement flagged €3.3 billion in additional spending and the Irish Fiscal Advisory Council has also signalled overruns of €2.5 billion in day-to-day spending by the end of this year. A medium-term fiscal plan had been expected during the summer and would have helped frame allocations between longer-term planning and short-term increases beyond the annual budgetary cycle.
Additionally, many view Ireland’s public finances as somewhat anchorless given their reliance on exceptional corporation tax receipts on the one hand and, on the other, concerns that the EU’s new fiscal rules are largely ineffective in controlling government spending given their reliance on GDP.
Concerns have also been raised that universal measures risk overheating the economy, while efforts to prioritise too many areas simultaneously might result in limited progress.
Budget negotiations were tense in recent weeks inside Government buildings, with the Department of Public Expenditure keen to keep a sharp eye on spending in the context of both overruns in departments such as health and education and high existing levels of service commitments.
It has been well signalled that the once-off cost of living measures introduced in recent years were not going to continue, and that this was going to be a cautious budget focussed on more targeted, progressive and long-term measures. In recent weeks, we saw the inevitable tensions between this approach and more traditional, populist universal payments.
With new tariffs taking effect and an uncertain international trade environment, the Budget has sought to enhance Ireland’s resilience by driving investment to stimulate economic competitiveness and protect jobs.
Amidst pressure to increase housing supply, VAT on the sale of completed apartments has been reduced to 9% from 13.5%, effective from now to the end of 2030.
The Government is also introducing an enhanced corporation tax deduction for certain costs incurred on the construction of apartment developments, and for the conversion of non-residential buildings into apartments.
A total of €2.9 billion has been earmarked for new-build social homes and the acquisition of second-hand housing while almost €2 billion will go towards social support programmes including the Housing Assistance Payment, Rental Accommodation and Social Housing Current Expenditure Schemes.
€558 million in carbon tax revenue will be ringfenced for residential and community energy upgrade schemes and to support retrofits of public buildings. Additional funding will support climate objectives and enhance biodiversity with projects such as decarbonising of rural bus transport, biodiversity measures and wetland restoration. €82 million has been allocated to support a Just Transition for the wider Midlands region.
The reduced 9% VAT rate on gas and electricity bills will continue until the end of 2030, and a rise in carbon tax will bring the tax to €71 per tonne of CO2emitted which is applicable to auto fuels tomorrow and all other fuels from 1 May 2026.
Tax bands and allowances remain largely unchanged, which unions have warned will likely lead to higher wage demands to meet rising costs of living. The national minimum wage will increase by 65c to €14.15 per hour from 1 January 2026 and follows recommendations by the Low Pay Commission.
An adjustment to the 2% Universal Social Charge rate band will see the ceiling rise to €28,700 to ensure that workers on the minimum wage do not fall into higher rates of tax. The €1,000 renter tax credit will be extended for a further three years to 2028.The package of supports for business centres on the protection of the hospitality sector, and incentivising long-term investment in Irish enterprise.
The VAT rate for food, catering and hairdressers has been reduced from 13.5% to 9%, with a phased entry from July 2026. The Research and Development (R&D) tax credit is to increase by 5% to 35%, with the first-year payment threshold up from €75,000 to €87,500. A new Research and Development compass will be published in the coming weeks to consider changes to the tax credit to support better innovation and to align with industry practices.
The existing Capital Gains Tax Revised Entrepreneur Relief has been enhanced by increasing the lifetime limit on gains to which the relief applies, from €1 million to €1.5 million for disposals made from 1 January 2026.
Core social welfare payments such as the State pension are due to rise by €10 per week. Double welfare payments will again take place at Christmas. The weekly Fuel Allowance will increase by €5. Funding will focus on targeted payments with the Child Support Payment rising by €8 for children under 12 and €16 for those 12 and over, which is the largest ever increase in the rate. The Working Family Payment income threshold is to increase by €60 per week, with Fuel Allowance eligibility extended to these recipients.
The Back to School Clothing and Footwear Allowance is now extended to two- to three-year-olds. There will be another increase in the income disregard for Carer’s Allowance, to stand at €1,000 for a single person and €2,000 for a couple. Mortgage interest relief is extended for another two years, with a reduced value in the second year. The pilot State Basic Income for the Arts scheme will be put on a permanent footing as of next year.
A key general election promise was for additional disability supports and Budget 2026 sees a funding allocation for this focused on additional staff, as well as residential, respite and day places. There is also funding for an increased number of private assessments and for Community Based Specialist Disability Services. A new unit established in the Department of Children, Disability and Equality will undertake a review of Ireland’s disability service model.
Access to affordable childcare was another top election issue and the lack of significant cost reductions may draw ire. An infrastructure programme will fund extensions of existing community centres and schools to deliver approximately 2,300 additional childcare places. Approximately 35,000 additional children will benefit from the National Childcare Scheme next year, with provision for improved pay for staff under core funding. Schools will see funding for 1,717 new Special Needs Assistants, 1,042 new teacher posts and 860 additional special education teachers.
Access to affordable childcare was another top election issue and the lack of significant cost reductions may draw ire. An infrastructure programme will fund extensions of existing community centres and schools to deliver approximately 2,300 additional childcare places. Approximately 35,000 additional children will benefit from the National Childcare Scheme next year, with provision for improved pay for staff under core funding.
Schools will see funding for 1,717 new Special Needs Assistants, 1,042 new teacher posts and 860 additional special education teachers. A new Access to affordable childcare was another top election issue and the lack of significant cost reductions may draw ire.education therapy service is to roll out and there will be a new DEIS+ scheme for schools with the highest levels of educational disadvantage.
Students will see the third-level registration fee drop permanently by €500 to €2,500, with funding for 1,110 new key health and social care professionals and additional apprenticeships to support key infrastructure projects. An €810 million capital allocation will fund key infrastructure projects such as the new Taighde Éireann, the development of 11 technological university facilities to support STEM and related disciplines, and the progression of centres of excellence for retrofit skills.
This year’s budget also brings funding for an increased 12,500 staff to deliver public services, including over 3,370 new staff in health, 2,600 in the education sector and up to 1,000 additional gardaí. Following another overrun on spending, health has received a record investment of €27.4 billion. This will be underpinned by a continued focus on increased productivity such as roster reform, better financial governance and a move towards multi-annual funding.
This year’s announcement centres around increased capacity including at least 220 new acute hospital beds and 280 community beds, expanded diagnostics, reductions in community waiting lists and the roll out of the new pharmacy contract.
The Government has provided €1.4 billion to Uisce Éireann to continue to build capacity to support new housing developments and to increase the resilience and sustainability of water supply.
The ESB and EirGrid have been allocated €3.5 billion to strengthen energy security and accelerate the transition to renewable energy. The State will continue to place significant reserves into the Future Ireland Fund and the Infrastructure, Climate and Nature Fund to deal with future demographic and structural demands on national finances.
Both funds are projected to reach €24 billion by the end of 2026 and €40 billion by the end of 2029. A total of €433 million has also been allocated to support the completion of the National Broadband Plan.
There is a €10.7 million increase in current expenditure for Sport Ireland, with particular attention for grassroots talent cultivation in football following eligibility rule changes post-Brexit. €233 million has been allocated for the Tourism Services programme to aid regional development and employment. A new Dublin–Derry airlink will be commenced as part of additional funding for the Shared Island initiative.
Finally, a new €1 billion contingency fund will be created to be used for Ireland’s EU Presidency hosting in the latter half of next year as well as for exceptional in-year pressures.
Additional analysis by Martin Phelan and Lola Berni
October 8, 2025
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