When Paschal Donohoe returns to give his first Budget speech as finance minister for three years he will no doubt attempt to offer reassurance that Ireland’s public finances remain in good shape, that spending is justified and the government is investing for the future.
There will be a few familiar themes that have been a consistent focus of the administration since it returned to office. The first is that infrastructure is the priority, with years of underinvestment to be counteracted by pumping unprecedented sums into energy, water, transport and housing. The second is that there is a long-term plan for the Irish economy, and the third is short-term relief to ease the pressure of the cost of living crisis.
Carrots and sticks
What, then, the Budget will contain? Here are my predictions.
Ireland wants to be an innovation hub but penalises risk-takers
SMEs and entrepreneurs will not find a framework on which to build their future plans. The government will offer gestures, as it usually does. The deeper reforms that business has called for, such as cutting capital gains tax, improving access to finance for high-growth startups, broadening reliefs for investors and introducing incentives to reward employees are unlikely to appear.
This matters a great deal for entrepreneurs. Ireland talks a lot about becoming a hub for innovation, but its high taxes and funding system often penalises risk-takers. Without meaningful reform here, Budget 2026 will again underline that the country’s enterprise policy is geared more towards multinational companies than enabling the next generation of Irish businesses and their founders and investors.
I suspect some sort of fudge will be agreed, lowering VAT for hospitality and services but perhaps not introducing the cut until late in 2026. It will also come with some caveats that businesses must reduce prices.
With surpluses earmarked for capital spending, taxes cannot be slashed
Employees can expect modest changes to income tax bands and credits, framed as protection from the cost of living crisis. The scope for genuine reductions in Ireland’s high taxes is limited by both money and political will. Ministers may trumpet the gains, but for most people the difference will be marginal. A few hundred euro a year at best will be in your pocket, as has been the case in recent Budgets. With surpluses already earmarked for capital spending, the Exchequer is not in a position to cut taxes more deeply.
On the revenue raising side, carbon taxes will continue to increase, as will excise duties on tobacco, although the duty on alcohol is unlikely to change. There may be some surprise measures too. Last year’s ‘mansion tax’ took many in the property industry by surprise. Increased betting duties are another potential source of additional income.
Tax watershed
One of the big themes will be how the macro environment is changing, and the long-term consequences for the country. Ireland has benefitted enormously from globalisation, the free flow of trade and favourable corporate tax arrangements. That era is ending. Tariffs are becoming the new norm and the impact of the US imposing a 15% tariff on EU countries has yet to be assessed. For a country like Ireland that is so reliant on multinationals’ exports and success, this represents a strategic vulnerability that requires action to ensure the stability of the public finances.
Ireland cannot count on strong corporation tax receipts forever
Government officials know this. The Budget documentation will likely contain warnings that Ireland cannot count on strong corporation tax receipts forever. There will, however, likely be little in Budget 2026 to show how the country is preparing for this shift.
Overall, it will be presented as striking a balance between investing in infrastructure, easing pressures on households and supporting businesses. In truth, the Budget will expose the limits of the government’s room for manoeuvre even in an era of plenty.
Budgets are about choices, and this year looks set to make the easiest ones that circumstances allow. That will be more spending today, modest relief for households, and piecemeal measures for business. What is still missing is a strategy that combines discipline in public finances with real support for entrepreneurs who will drive the next phase of growth. With global conditions turning against Ireland, that combination has never been more important. Without it, the country risks spending freely in the present while leaving the foundations of future prosperity dangerously weak.
