{"id":72905,"date":"2025-09-19T06:13:16","date_gmt":"2025-09-19T06:13:16","guid":{"rendered":"https:\/\/www.europesays.com\/ie\/72905\/"},"modified":"2025-09-19T06:13:16","modified_gmt":"2025-09-19T06:13:16","slug":"here-is-the-likely-shape-of-the-tax-package-and-what-it-means-for-your-pocket-the-irish-times","status":"publish","type":"post","link":"https:\/\/www.europesays.com\/ie\/72905\/","title":{"rendered":"Here is the likely shape of the tax package and what it means for your pocket \u2013 The Irish Times"},"content":{"rendered":"

Much of the focus in the run-up to the budget<\/a> has been on spending and on issues such as the proposed ending of once-off payments<\/a> and what increases in key welfare rates and rules might be.<\/p>\n

But what about tax? For the so-called squeezed middle, tax changes remain key to putting money directly into people\u2019s pockets. So what should we expect this year?<\/p>\n

1. The cash dilemma<\/p>\n

Senior Ministers have warned repeatedly about the limitations they face in shaping the budget. T\u00e1naiste Simon Harris warned this week that \u201cthere may not be a lot of space to do a lot of personal tax this year\u201d. <\/p>\n

Some \u20ac1.5 billion has been set aside for a tax package. Subtract from that a substantial amount to meet the commitment to cut VAT on hospitality to 9 per cent and, on the face of it, you are not left with much. This is reportedly causing unease on the Fianna F\u00e1il backbenches in particular, where the VAT cut is seen as a Fine Gael measure.<\/p>\n

Let\u2019s look at the figures. If VAT was cut for the entire hospitality sector, it would cost more than \u20ac870 million a year. <\/p>\n

[\u00a0Government\u2019s budgetary stance is too loose, ESRI warnsOpens in new window<\/a>\u00a0]<\/p>\n

If the reduction to 9 per cent was just for food services, the cost falls to \u20ac670 million. Postponing the introduction of the cut to, say, spring 2026 would reduce the cost further next year, but the full price would still have to be paid in subsequent years.<\/p>\n

Some compromise looks likely. There will be room for a personal tax package \u2013 the issue is its scale. <\/p>\n

2. How the numbers stack up<\/p>\n

The \u20ac1.5 billion budget tax package <\/a>is a net figure. In other words there will be money raised through some tax increases, as well as the cuts, and the \u20ac1.5 billion is the balance between the two. <\/p>\n

So how will the pluses and minuses balance up and is there room for manoeuvre? A significant fundraiser will be the renewal of the bank levy, which would raise about \u20ac200 million, a substantial amount in a budget where the numbers are tight. <\/p>\n

Another \u20ac70 million or so could come from hiking tobacco excise yet again, though the payback from these rises is not what it once was. These both put a bit more in the pot.<\/p>\n

Some \u20ac120 million will be raised through the annual increase in carbon taxes, which will pay the cost of keeping the VAT rate on home energy bills at 9 per cent.<\/p>\n

Given the recent electricity price increases \u2013 and the statement that there will be no household energy credits \u2013 there is no way the VAT rate on home bills will be allowed to rise too.<\/p>\n

\"\"Why has the DAA board fallen out with chief executive Kenny Jacobs?<\/p>\n

There will be other smaller gives, and some takes, including in the business tax area. And an unknown is whether there will be any new construction tax breaks and, if so, what they might cost. There is room for a row here, too. <\/p>\n

But the ability to raise some extra cash \u2013 and restrict the 2026 cost of the VAT cut for hospitality \u2013 will allow for some cuts on personal tax and universal social charge<\/a> (USC), though not as much as in last October\u2019s budget when the reductions in this area cost more than \u20ac1.8 billion.<\/p>\n

3: Putting together the tax package<\/p>\n

So how much can be found for personal tax? <\/p>\n

To make any kind of difference, a sum of at least \u20ac1 billion would be needed, which would still be significantly less than last year. <\/p>\n

Department of Finance calculations are that a sum of just over \u20ac1 billion would be needed to inflation-proof the income tax system \u2013 in other words to ensure that credits and the standard rate band, which determines the rate at which people enter the higher 40 per cent tax rate, rise to match expected wage inflation of around 4 per cent. This is surely the minimum possible. <\/p>\n

[\u00a0Central Bank warns State spending not sustainable without raising taxes or infrastructure cutsOpens in new window<\/a>\u00a0]<\/p>\n

If this does not happen, higher wages can erode the real value of tax credits and leave more income taxed at the higher, 40 per cent rate. <\/p>\n

Most earners benefit from two standard tax credits. A 2026 tax package might include a \u20ac160-\u20ac200 combined increase in the standard tax credits paid to most earners \u2013 in other words the personal and employee tax credits would both rise by \u20ac80-\u20ac100 and the earned income credit \u2013 which applies to the self-employed \u2013 would increase by the same amount. The specific credits applying to home carers, single parents and others would increase, too.<\/p>\n

The other key measure to adjust for inflation is increasing tax bands,+ and particularly the rate at which people enter the higher 40 per cent income tax rate, currently \u20ac44,000 for a single person or \u20ac53,000 for a married couple with one earner. <\/p>\n

This rose by \u20ac2,000 in the last budget and our wage inflation adjustment this time would require a rise of around \u20ac1,750. A \u20ac1,500 increase would be the bare minimum. <\/p>\n

[\u00a0Opposition wants fresh round of household electricity credits in Budget 2026Opens in new window<\/a>\u00a0]<\/p>\n

So in this scenario the income tax cuts would be less than last year and there would be no room for big USC reductions, bar perhaps a rise in the some of the ceilings at which the different rates apply, again to reflect wage inflation. The personal tax system, in other words, could be index-linked. <\/p>\n

Personal circumstances will mean some get some. Given the \u2013 entirely justified \u2013 political heat around renting, the credit here is likely to rise too.<\/p>\n

Last October a \u20ac250 increase cost \u20ac65 million and it would be a surprise to see anything less in next month\u2019s package. Also, there must be a temptation to renew the mortgage interest relief, which can deliver a maximum of \u20ac1,250 for one more year to households paying higher rates. This was costed at \u20ac44 million last year and low uptake may have cut the bill.<\/p>\n

The Cabinet also needs to decide whether to offer other specific reliefs, for example in inheritance tax thresholds. <\/p>\n

4. Here is the issue<\/p>\n

The Programme for Government promises, if the economy remains strong, to index credits and bands \u201cto prevent an increase in the real burden of income tax\u201d. We have seen how this may just be affordable. But the problem for the Coalition is twofold.<\/p>\n

[\u00a0No more once-off cost-of-living measures, T\u00e1naiste saysOpens in new window<\/a>\u00a0]<\/p>\n

First, the permanent tax package will deliver less than last October. Then, a single worker on \u20ac50,000 gained \u20ac859 in cash terms. <\/p>\n

This year, looking at our smaller package, it might fall \u2013 using our speculative calculations \u2013 to around \u20ac700. For a joint-income couple on about \u20ac115,000, last year the income tax gain came to \u20ac1,753. This year it might be between \u20ac1,400 and \u20ac1,500.<\/p>\n

Second, if the Government sticks to its guns and there is no cost-of-living package with energy credits and double child benefit weeks, then households will notice that too. Our single earner with no children would have received an extra \u20ac250 from last year\u2019s budget in two energy credits (plus another \u20ac250 if the person was a renter).<\/p>\n

[\u00a0Government \u2018flying blind\u2019 on budgetary policy, says Irish budget watchdogOpens in new window<\/a>\u00a0]<\/p>\n

Our dual income couple would have received the \u20ac250 for the energy credits and an extra \u20ac280 for every child they had. That is \u20ac1,090 for a three-child family.<\/p>\n

So a smaller tax package and no cost-of-living package will mean much less significant gains for households from this budget.<\/p>\n

The political <\/a> stance of the Coalition is that money needs to go now to vital investment in areas such as housing and infrastructure and to permanent supports for households and particularly key areas of need. <\/p>\n

They will try to put money back in household pockets through measures such as childcare supports. But, whatever it does, politically this budget will still be a hard sell. <\/p>\n","protected":false},"excerpt":{"rendered":"Much of the focus in the run-up to the budget has been on spending and on issues such…\n","protected":false},"author":2,"featured_media":14054,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[3],"tags":[9,10,10471,2190,18,13,14,6,19,17,11,12,15,16,5,13083,7,8],"class_list":{"0":"post-72905","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-headlines","8":"tag-breaking-news","9":"tag-breakingnews","10":"tag-budget","11":"tag-cost-of-living","12":"tag-eire","13":"tag-featured-news","14":"tag-featurednews","15":"tag-headlines","16":"tag-ie","17":"tag-ireland","18":"tag-latest-news","19":"tag-latestnews","20":"tag-main-news","21":"tag-mainnews","22":"tag-news","23":"tag-smart-money","24":"tag-top-stories","25":"tag-topstories"},"share_on_mastodon":{"url":"","error":""},"_links":{"self":[{"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/posts\/72905","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/comments?post=72905"}],"version-history":[{"count":0,"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/posts\/72905\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/media\/14054"}],"wp:attachment":[{"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/media?parent=72905"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/categories?post=72905"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/tags?post=72905"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}