Simplicity is the big reform that Budget 2027 forgot
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, tax partner, KPMG Ireland, analyses the key impacts of Budget 2027. To assess what Budget 2027 will mean to you, click on the KPMG Budget 2027 Calculator, below
The Minister for Finance, Simon Harris, had set the context for Budget 2027 before a single measure was announced. He pointed to three risks: volatile energy markets and the disruption in the Middle East, deep uncertainty in global trade, and mounting pressure on bond markets as other countries struggle to refinance their debt. The message was that demands at home must be weighed against risks abroad.
For enterprises, their real concern is the cost of doing business. That means energy, but also the red tape and compliance headaches that distract owners from running their companies. Judged on that basis, this budget made some useful moves but left a lot undone.
The €1.3 billion allocated to personal tax is a sizeable share of the overall tax package. That is welcome but there was no income tax package last year, so this is effectively two years of adjustment in one. With costs still rising, much of it simply offsets bracket creep. People may have more in their pockets, but it buys less. The increase in the rent tax credit, while needed, falls into the same category of running to stand still.
What was missing was a line of sight. The Minister could have committed to indexing the tax bands to inflation for the lifetime of this Government. He would argue that the uncertainties he outlined make that a hostage to fortune. But the current approach lets workers' on-average earnings drift into the higher rate before a budget rescues them. Better to set the bands so that no rescue is needed.
For companies, raising the small company threshold for preliminary corporation tax from €200,000 to €350,000 is a welcome step, as the limit had not moved in about 15 years. This change is a welcome cash-flow measure for growing SMEs and reflects an important principle. Large companies have finance teams to manage compliance. The owner of an SME would rather be out meeting customers and making payroll. Our tax system needs to differentiate far more between the two.
With the 15 per cent global minimum tax limiting competition on rates, the R&D tax credit matters more than ever. Combined with the 12.5 per cent deduction, smaller companies effectively get relief worth 47.5 per cent of qualifying spend. This year, the first-year cash payment rises from €87,500 to €105,000, and companies can spend more on outsourced research, including with universities such as UCC and MTU. That strengthens the wider innovation ecosystem.
The cut in Capital Gains Tax from 33 per cent to 31 per cent, while welcome, is modest and arguably adds complexity. Development land stays at 33 per cent, which one might question given the need to release land for housing as mentioned in Minister Chambers’ speech. The previous alignment with Capital Acquisitions Tax, whereby CGT paid on certain gifts could effectively shelter an equivalent CAT liability, has been disturbed. Add the cut in exit tax on certain life and fund products to 35 per cent and we now have rates of 35, 33 and 31 per cent side by side, on top of multiple USC, PRSI and income tax rates. That is not simplification.
The new Investment Account, due in July 2027, is a positive move. Launching it alongside a financial literacy initiative is sensible, and with a €12,000 annual contribution limit and a €50,000 tax-free threshold it is hardly a giveaway to the wealthy. The devil will be in the detail, particularly other costs or charges that can erode the benefits of compounding.
Simplification is the theme this budget did not grasp and interest deductibility is a case in point. Rules have been piled on rules since the 1970s and new international standards, initially introduced via an EU Directive a decade ago, were added on top rather than replacing them. The Minister has signalled some amendments to reliefs but root-and-branch reform is needed. A consultation was initially flagged in 2024 and has yet to produce meaningful reform.
The change of approach on Enhanced Reporting Requirements is instructive. Business argued from the outset that the real-time reporting element of the measures were unnecessary and overly burdensome, yet only after the report from the Cost of Business Advisory Forum has the Government changed course. Measure twice, cut once.
There is good in Budget 2027, but a more simplified tax system that people more readily understand is one they trust and buy into. That is where more progress is required.
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