What income tax savings might we see in Budget 2027?<\/p>\n
With more than one million taxpayer \u201cunits\u201d paying tax at the higher rate of 40 per cent on their incomes and an ongoing cost-of-living crisis, the pressure is on to deliver some form of relief in this October\u2019s budget<\/a>.<\/p>\n Workers got no benefit last year from a cut in income taxes; this year, the Government is expected to avoid a repeat of that. After all, one tax is already due to go up in October: from the first of that month, PRSI will go up by 0.15 of a percentage point.<\/p>\n While no figure has yet been put on the amount of money that will be available for tax cuts in Budget 2027<\/a>, it now appears that there will be a move on this front.<\/p>\n Speaking earlier this month, Minister for Finance Simon Harris said \u201ceconomic progress must be felt not only in headline statistics, but in people\u2019s pay packets and in their daily lives\u201d, adding that increasing the point at which workers start to pay the higher rate of income tax had helped people keep more of what they earn.<\/p>\n \u201cWe will consider further increases in that threshold as a practical way of ensuring wage growth translates into higher take-home pay,\u201d he said. <\/p>\n That is in line with what\u2019s going on in other countries as inflation erodes people\u2019s take-home pay<\/a>. In Germany, for example, finance minister Lars Klingbeil is understood to be considering plans to raise the threshold at which the top tax rate, 42 per cent, applies, from \u20ac70,000.<\/p>\n So what might be done to keep more of workers\u2019 money in their pockets and out of the tax net? And how much might workers benefit?<\/p>\n Bracket creep<\/p>\n First, a word of caution: while tax reforms might be a welcome feature of Budget 2027, calling them \u201ctax cuts\u201d \u2013 regardless of Government rhetoric \u2013 might not be accurate.<\/p>\n As our table shows, the numbers paying tax <\/a>at the higher rate continue to rise, with more than one million \u201cunits\u201d now paying tax at 40 per cent on at least some of their income. That is likely to indicate a higher number of people, as a \u201cunit\u201d can cover either individual taxpayers or those who are jointly assessed.<\/p>\n Earnings are rising, but if tax bands don\u2019t increase at the same pace, the real value of any wage increase people get is eroded.<\/p>\n As we still don\u2019t have indexation under which bands would be adjusted in line with inflation each year \u2013 the personal tax credit, for example, at \u20ac2,000, hasn\u2019t been changed since 2024 \u2013 the lack of change seriously erodes what you get to bring home. Known as bracket creep, this happens when earnings rise, but tax bands don\u2019t move at the same pace, pushing more taxpayers into higher tax brackets without an equivalent real improvement in their take-home pay.<\/p>\n Any adjustment in this year\u2019s budget is likely to be more akin to bringing bands into line with inflation \u2013 as opposed to offering hard-pressed taxpayers any real reductions in their tax burden.<\/p>\n Potential for change <\/b><\/p>\n Now to the potential changes. <\/p>\n Policy in recent years has backed away from adjusting the actual rate of tax \u2013 the last time the higher income tax rate was changed, was back in 2014, when the then top rate of 41 per cent was cut by one percentage point. Instead, the focus has been on increasing the income level at which you move into the top tax bracket.<\/p>\n