Budget 2026 will ‘invest in our future’ and secure jobs, says Donohoe
Minister for Finance Paschal Donohoe has said Budget 2026 will “invest in our future” while also securing current jobs, prosperity and stability.
As he began his Budget Day speech in the Dail chamber, he said the first budget of this coalition Government’s term would deliver for citizens and “tackle the serious challenges of meeting our housing and investment needs”.
“This budget builds up our resilience and will help us to adopt at a time of historic challenge and change for our economy and our society,” he said.
“Our debt ratio is moving in the right direction, and has almost halved since I delivered my first budget to the house in 2016.”
He said it was “regrettable” that US tariffs were introduced and said they would impact growth in the coming years.
“This year saw greater fragmentation as widespread tariffs were introduced, the world has been pulling away from its near universal commitment to free and open trade, a commitment that benefited many, and our fortunes are connected to the world around us.”
Minister Donohoe has said the Irish economy is forecast to grow by 3.3% this year and by 2.3% next year.
Unveiling Budget 2026, he said that a further 63,500 jobs are expected to be added by the end of the year, and inflation is expected to remain at around 2% next year.
“My department is projecting Modified Domestic Demand, the best measurement for our domestic economy, to grow by 3.3% this year and by 2.3% next year.”
He also outlined that the National Development Plan to commit €275bn in infrastructure over the next 10 years would “boost growth and job creation in the short and medium term”, as well as “increase the potential for our country”.
“This Budget will secure jobs and stability at a time of global challenge.”
The Government is to spend more than the parameters set out by the Summer Economic Statement, while reducing the size of tax measures.
The Summer Economic Statement set parameters for a planned package of €9.4 billion in Budget 2026, including €7.9bn in additional public spending and a €1.5bn envelope for tax measures.
Minister Donohoe said the tax package has been reduced by €150m from those levels to facilitate additional spending in “targeted supports for the most vulnerable”.
Mr Donohoe said €8.1bn will be allocated for public spending, while the tax package now stands at €1.3bn.
He said the public finances as are in “good shape” and that overall budgetary package is “unchanged” from the parameters set by the Summer Economic Statement – at €9.4bn.
Mr Donohoe said the Government surplus will be €10.2bn this year, and €5.1bn in 2026.
He added that, by the end of next year, there will be €24bn in the long-term saving funds: The Future Ireland Fund and the Climate and Nature Fund.
He said there would be €40bn in the funds by the end of the Government’s term.
Minister Donohoe described housing as being at the “forefront” of his mind while preparing the Budget.
In his speech, he said he has allocated an additional €200m of external funding to support the Home Building Finance Ireland scheme, which provides finance to homebuilders across the country.
Additionally, VAT on the sale of completed apartments will be reduced to 9% from 13.5% from tonight to the end of 2030.
The Residential Zoned Land Tax will be extended until next year, allowing landowners to avail of an exemption if they “seek to have their land rezoned to reflect the genuine economic activity being carried out”.
Mr Donohoe also said he is exempting the rental profits arising from homes that fall within the Cost Rental Scheme from corporation tax.
And introducing an enhanced corporation tax deduction for “certain costs” incurred on the construction of apartment developments, and for the conversion of non-residential buildings into apartments.
Minister Donohoe announced a new Derelict Property Tax to replace the Derelict Sites Levy, stating that dereliction is “a blight on our towns and cities”.
He said he does “not intend” for the new tax to be charged at a lower rate than the levy, which is currently set at 7% of the site market value.
He said legislation for this would be brought forward next year.
Mr Donohoe also announced measures to strengthen the Living City Initiative, which aims to enhance older homes and businesses.
He said it would be extended until the end of 2030, will include “over the shop” premises for residential use, and expand it to homes built before 1975 – an extra 60 years’ worth of Irish homes.
The Residential Development Stamp Duty Refund Scheme, which is due to expire at the end of 2025, is to be extended until the end of 2030, and is changing two time limits that apply – for acquisition to commencement and commencement to completion from 30 to 36 months in relation to large-scale residential development.
There will be “targeted changes” to the Universal Social Charge (USC) from 1 January, the Minister for Finance said, alongside an increase to the minimum wage.
The national minimum wage is to increase by 65c per hour to €14.15 per hour.
Minister Donohoe said the 2% rate band for USC will therefore rise by €1,318 to €28,700.
He said this will ensure full-time workers on minimum wage will remain outside the top rates of USC, and give a “modest benefit to all workers”.
On the overall Budget, Mr Donohoe said there was “limited” scope for “significant personal tax changes”, but said the Government “will stand by” commitments to make progressive changes for income tax over the full term.
The renters’ tax credit, which had been due to expire this year, will be extended for a further three years to the end of 2028.
VAT for food and catering businesses, as well as hairdressing services, will be reduced from 13.5% to 9% from 1 July 2026 – at a cost of €232m next year and €681m in a full year.
Mortgage interest tax relief will be extended for a further two years, with a reduced value applying in the final year.
The 9% VAT rate on gas and electricity bills will be extended until the end of 2030.
The research and development tax credit will increase from 30% to 35% while the first-year payment threshold will go up to €87,500.
Minister Donohoe said he was also publishing an “action plan” to “reform Ireland’s tax regime for interest”.
A carbon tax increase will be applied to auto fuels from tomorrow and all other fuels on 1 May next year, Minister Donohoe has said.
The rate of the tax will go to €71 per tonne of CO2 emitted.
The revenue arising from carbon tax is estimated at €121m next year, and €157m for a full year.
Mr Donohoe said this revenue will be “ringfenced to ensure that the carbon tax policy is progressive”.
He said the Government would spend this revenue on social welfare measures and other schemes to address fuel poverty “and ensure a just transition”.
He told the Dail this involved a “socially progressive national retrofitting programme” and measures to incentivise “greener” farming.
Mr Donohoe also said the €5,000 VRT relief for electric vehicles will be extended by a year until the end of 2026, to support their uptake.
Minister Donohoe also said that excise duty on a pack of 20 cigarettes would increase by 50 cent, with a pro-rata increase on other tobacco products.
Meanwhile, Minister for Public Expenditure Jack Chambers said there will be an additional €6.1bn in current expenditure with the Budget on capital budgets increasing by €2bn.
This is higher than the €5.9bn for current expenditure and €2bn for capital expenditure – that was under the Summer Economic Statement.
Mr Chambers said the Budget 26 package includes 2bn euros for social protection, €1.5bn for health, €1.2bn for public service pay agreement adjustments and €1.4bn for other supports.
“Overall, this will support an increase of 12,500 staff to deliver services directly to the public.”
This was broken down to more than 3,370 in the health sector, 2,600 in education, and “up to” 1,000 gardaí.
Mr Chambers also said he will be setting aside €1bn in a contingency reserve to be held centrally for “exception in-year expenditure pressures” and costs associated with Ireland hosting the EU presidency.
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