Alan Healy: Tax cuts? Wait until next year

Minister for Finance, Paschal Donohoe at the Department of Finance, Government Buildings. Photo: Sasko Lazarov/© RollingNews.ie

BUDGET 2026 was pitched as an investment in the future, promising jobs, prosperity, and stability.

Yet for Irish businesses, the reality is they must adopt a wait-and-see approach. This is because some key measures will not be taking effect until well into next year.

With Vat cuts for hospitality and apartment construction, research and development (R&D) funds, extra gardaí on the streets, and some effort to row back on spending, the budget was pitched as pro-business. However, it remains to be seen when businesses will feel the trickle-down benefit.

The long campaigned for 9% Vat rate sought by the hospitality sector was approved, but won’t come into effect until next July.

Hotels were excluded from the Vat cut, and will continue to face the 13.5% charge. However, the Government could not find a mechanism to restrict the 9% rate to smaller operations — which means the fast food giants will also benefit, something the opposition parties were quick to latch on to.

The Vat cut will cost €232m, and that is just for six months, with the full-year cost running to €681m. That delay could also take the wind out of its impact.

Before next July, businesses will have to bear the brunt of a minimum wage hike and pension auto-enrolment.

General costs continue to rise, so a Vat cut is welcome, but the benefits may very well be swallowed up in less than a year.

Even when the Vat cut does come into effect, there remains the question of how much will be passed onto the consumer.

Before next July, businesses will have to bear the brunt of a minimum wage hike and pension auto-enrolment.

A Vat cut aims to address immediate challenges for some business sectors, but the Budget’s single biggest structural challenge, housing, received significant attention.

A lack of homes for the general public is not just a social problem, it is an economic one. Businesses, small and large, have long raised the lack of accommodation as the primary drawback to attracting workers. Construction cranes have returned in significant numbers across the Cork skyline, with extensive apartment development now taking place across the city, highlighting the changes being made to address the issue.

The Vat cut on apartments should help further, but Ireland remains a very expensive place to build.

Broadening the living city initiative and a new derelict property tax should mean cities, towns, and villages getting tough on vacant properties which have long blighted urban areas. However, like the recruitment of up to 1,000 extra gardaí, the impact of these developments will take time to materialise.

The R&D changes are undoubtedly pro-business, raising the credit to 35%.

It should support mid-sized businesses to adopt innovation and invest in future growth. Tied to this is the lifting of the capital gains relief for entrepreneurs to €1.5m, but it will also take time to come into effect.

Despite the changes, Ireland will remain a European outlier in a number of areas — with our 33% capital gains tax rate standing out. Changes to PRSI were also flagged in the programme for government, with many groups hoping to see a reduction. Businesses have already been hit with a 0.1% PRSI rise this month.

There is a sense that many of the measures will be swallowed up by other factors.

Ultimately, in a year defined by global uncertainty and trade instability, Budget 2026 was a missed opportunity. Instead of using the current corporate tax boon to build genuine stability and resilience, the Government delivered a moderate package of delayed and potentially short-lived benefits. This leaves the nation’s finances highly exposed to the inevitable global downturn.

The State continues to benefit from a boon in corporate tax receipts, which puts us in an enviable position to cut some taxes and raise spending. It is this reliance, however, that makes the Government’s approach a missed opportunity; this budget was a moment to offer genuine stability at a very difficult time.

A wave of trade threats from the Trump administration left the global economy floundering in the first half of the year.

For Ireland, the tariffs and trade instability have forced the Government to face the reality of what many have warned for years: We have become far too reliant on the taxes of multinationals.

Ahead of this year’s budget, the warnings came regularly and with sufficient weight.

The troika of the Central Bank, the Irish Fiscal Advisory Council, and the Economic and Social Research Institute (ESRI) was most prominent.

The Central Bank pointed to economic growth of almost 3% this year, even without multinational tax receipts, and said the spending package was both unnecessary and “too large”. With one eye on a potential, or inevitable, downturn, the Central Bank warned the State would be faced with large spending cuts if the risks they warned about materialise.

A week later, the ESRI came out and pleaded with the Government to slow down. It sought a moderation in spending over the next five budgets.

The Fiscal Council, specifically set up as a State budgetary watchdog, also used road safety language to appeal to the Government. It stated the fiscal policy being followed as without a roadmap.

The fear of all three organisations is that the current level of spending means Ireland is not prepared for an inevitable downturn.

In the end, Paschal Donohoe and Jack Chambers chose to steer a course through choppy seas made up of warnings about overspending, households under pressure, and businesses facing rising costs and the threats of closure.

However, they have still increased spending by more than 6% — better than the 8% to 9% in recent years.

The Government may be able to argue that it has stopped pouring fuel on the fire. However, with an economy that continues to surge ahead but is reliant on volatile tax receipts, the country’s finances remain highly exposed in the event of a global downturn.