Budget 2026 commentary: Scaling Smarter

Overview

Budget 2026 is one of the most restrained budgets in recent years and marks the first of this government’s term.  The Minister described it as a budget that builds up our resilience, and an investment in Ireland’s future “while securing the jobs, prosperity and stability of today”.  With a total value of approximately €9.4 billion, it comprises €8.1 billion in spending increases alongside €1.3 billion in tax cuts, the latter representing a decrease  from €1.5 billion as was set out in the Summer Economic Statement to facilitate additional spending in targeted supports. 

The government has opted not to index income tax credits and tax bands to wage inflation, a decision which means that income tax changes remain limited.  We do hope the government will deliver on its promise of progressive changes to income tax in future Budgets if the economy remains strong.

Instead, Budget 2026 includes targeted tax measures designed to support business competitiveness and innovation, while other tax adjustments aim to encourage investment and economic activity.  Notably, the continuation of the rent tax credit provides ongoing relief for renters, and is coupled with measures designed to increase the housing supply side.  

Key Housing Measures

Tax policy is being leveraged in an attempt to deal with the housing supply crisis. The government has introduced several measures aimed at increasing housing supply and improving affordability.   

A major measure is the reduction of the VAT rate on completed apartments from 13.5% to 9%, effective from tonight through to the end of 2030. This aims to improve affordability in apartment construction and support the delivery of more, higher-density housing as part of a broader social policy. 

A new enhanced corporation tax deduction of 125% of specific costs, up to a maximum additional deduction of €50,000 per apartment unit will reduce the corporation tax paid on profits by up to €6,250.  This measure aims at improving the viability gap that currently exists between total apartment development costs and viable market prices.   

The Living City Initiative and a new Derelict Property Tax (DPT) are among other positive housing measures. 

Capital Tax Changes 

Capital taxes remain a contentious issue in Ireland. It is disappointing that Budget 2026 did not reduce the 33% CGT rate. Although the Tax Strategy Group estimates a 5% cut would cost around €346 million, legislation to lower CGT is essential to boost competitiveness, attract investment, and support growth.

The current rate hinders entrepreneurship and business scaling and whilst the €500,000 increase in the Revised Entrepreneur Relief threshold to €1.5 million offers a potential tax saving of €115,000 it remains uncertain if this will sufficiently encourage high-growth businesses to stay or expand in Ireland. We had hoped the lifetime limit would be closer to €3million to ensure Ireland remains competitive internationally and support Domestic Direct Investment. 

Research & Development (R&D) 

Budget 2026 demonstrates the government’s responsiveness to industry needs with a positive advancement in R&D tax credits. We welcome the increase in the credit rate from 30% to 35% in 2026, alongside enhancements to the payment threshold. This adjustment will be especially beneficial for SMEs and early-stage R&D projects. The planned publication of the forthcoming R&D Compass which may consider targeted changes to areas such as outsourcing restrictions and qualifying expenditure definitions are also significant developments. We will monitor these closely, as they have the potential to further encourage entrepreneurship and innovation, thereby strengthening Ireland’s competitiveness on the global stage. 

We look forward to seeing the publication of a pathway for development of innovation supports, and in particular we would like to see this including decarbonisation and digitalisation projects.  

Other Measures  

The extension of the Special Assignee Relief programme for five years is also a positive move that will provide certainty for companies, although the increase in the minimum limit to €125,000 reduces its accessibility. We look forward to seeing the simplification measures that the Minister referenced in the upcoming Finance Bill and hope that leads to the removal of certain unnecessary filing requirements. 

The reduction of the tax rate on investment returns from 41% to 38% is welcome but more needs to be done to put the large amount of funds on deposit into investment products. 

The Action Plan to reform Ireland’s tax regime on interest is a positive step towards simplifying this complex legislation and moving the Irish regime towards international best practice. We look forward to engaging with the Department of Finance and other government officials on this reform.  

Our view 

Overall, Budget 2026 is very different to last year’s pre-election budget and workers will not see any noticeable change in their take home pay come 1 January. The government had a complex balancing act: delivering one of the largest budget packages in recent years while managing fiscal constraints and prioritising long-term economic competitiveness. Budget 2026 signals a forward-looking agenda that seeks to position Ireland for growth, resilience and stability in the years ahead.