Budget 2027 to raise entry point for paying 40% rate of income tax

It comes amid ongoing pressure on the coalition to introduce a generous tax package for workers following a failure to implement any changes as part of last year’s budget. File picture: Niall Carson/PA

The entry point for paying the higher rate of income tax is set to increase to at least €46,000 in Budget 2027, as part of efforts to put money back into workers' pockets.

As discussions on the tax package continues ahead of the October 6 budget announcements, it is expected that middle-income earners could be over €500 a year better off due to changes to both tax bands and credits.

It comes amid ongoing pressure on the coalition to introduce a generous tax package for workers following a failure to implement any changes as part of last year’s budget.

The rate at which people pay the higher 40% rate of tax is currently set at €44,000.

The Irish Examiner understands that it is likely this will increase to at least €46,000, but it could end up being “€46,000 and a bit”, according to sources. The prospect of raising the entry rate to €48,000 to account for a lack of change last year is not under consideration.

If the entry rate for the higher rate of tax is increased from €44,000 to €46,000, those paying the 40% rate would be €400 a year, or €33 a month, better off.

It is understood that discussions around the tax changes are focusing on both tax bands and credits. Tax credits were increased by between €50 and €150 each in budgets delivered by the previous Fianna Fáil, Fine Gael, and Green Party coalition.

It is understood that discussions on credits have yet to begin, but that when the tax bands and credits are decided, it is likely to “push up” people’s take-home pay by “€500 or a bit more” next year.

There could also be slight changes to the lower rate of the Universal Social Charge (USC), which would benefit all workers, if the Government decides to implement the Low Pay Commission’s recommendation to increase the minimum wage by 79c an hour from €14.15 to €14.94.

The Irish Examiner understands that consideration will have to be given to whether businesses can afford to implement the commission’s recommendation, given rising prices and the pressure on industry from high energy costs.

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A decision on whether to accept or reject the Low Pay Commission’s recommendation will be announced on October 6.

Tánaiste and finance minister Simon Harris and public expenditure minister Jack Chambers announced in the Summer Economic Statement that the tax package in Budget 2027 will be €1.5bn. 

However, it is expected to be ultimately higher than this when new revenue-raising measures, such as the “old reliables” of increasing the cost of a packet of cigarettes, are decided.

• Louise Burne, political correspondent