Government Prepares Budget 2026 Amid Economic Uncertainty

As October 2025 approaches, the government is set to unveil its budget for 2026, with a package totaling €9.4 billion. This budget follows a previous pre-election spending plan that many deemed a giveaway. However, this year’s expectations are tempered by potential economic challenges, including anticipated 15% tariffs from the United States. The government is adopting a more cautious approach, emphasizing the need for sustainable financial planning amidst uncertain economic winds.

Budget Components and Key Changes

The proposed budget includes €1.5 billion in tax cuts alongside a €7.9 billion spending initiative, marking a 7.3% increase from the previous year. Despite the modelling of these figures under a 0% US tariff scenario, Taoiseach Micheál Martin has expressed confidence that the numbers will remain unchanged as the budget announcement date draws near.

Notably, once-off measures such as the energy credit and double child benefit payments are not expected to be part of this year’s budget. Finance Minister Paschal Donohoe has repeatedly stated that the government is focusing on establishing more permanent financial solutions rather than temporary reliefs.

Key Proposals for Families and Workers

One significant change on the horizon is a proposed modification to the child benefit system. The Taoiseach confirmed that a second tier for child benefit will be introduced, with details still being finalized. This shift aims to provide support for families affected by the removal of once-off measures.

The government is also looking to implement changes in income tax. Last year, workers received at least €1,000 in reductions and cost-of-living payments, but this year’s budget is expected to focus more on job creation and infrastructure development. Tánaiste Simon Harris mentioned that while some “progressive changes” in taxation are planned, they are unlikely to be as substantial as in the previous year.

In the hospitality sector, the government plans to reduce the VAT rate back to 9% from 13.5%, a measure initially introduced to support businesses during the pandemic. While this decision may help restaurants and cafes, it is projected to consume a significant portion of the tax package.

On social welfare, the government anticipates a weekly increase of €10, in contrast to the €12 hike seen last year. This adjustment reflects a tightening of fiscal policy and aims to balance the budget while still providing necessary support for those in need.

Housing and Additional Measures

In response to ongoing housing challenges, the rent tax credit is expected to increase. Currently set at €1,000 per individual, it is anticipated to rise, particularly following recent changes in rent regulations. The government has committed to progressively increasing the Rent Tax Credit, with proposals suggesting a potential boost to €2,000 for individuals and €3,000 for couples.

The government also faces pressure to address childcare costs, with a promise to introduce a €200 cap for parents. In the coming weeks, an action plan outlining these strategies will be published, emphasizing the importance of affordable childcare for families and the economy.

Furthermore, discussions regarding inheritance tax are ongoing, with backbenchers advocating for adjustments to the thresholds. Although no immediate changes are confirmed for this budget, there is a consensus that revisions may be on the horizon in future legislative sessions.

Finally, the government plans to implement a new tax on e-cigarettes, with Minister for Jack Chambers announcing a duty that will double the cost of refill cartridges and add a €1 tax on disposable vapes. This measure is part of a broader strategy to regulate vaping products and raise additional revenue.

As the budget announcement date approaches, the government must navigate economic uncertainties while addressing the needs of families and businesses. With various proposals on the table, the upcoming budget will likely reflect a balance between fiscal responsibility and the need for social support.