Overview
The 2027 Budget was framed in the context of a buoyant economy. The Modified Domestic Demand measure of National Income, which excludes the profits of Multi-Nationals, indicates that the economy will grow by 3% next year. There is a record number of people employed in the economy at 2.8 million. We have had 4½ years of full employment, the longest stretch ever!
Wages have been rising by an average of 4½ per cent per year over the last four years. This year the State will run a surplus of €6.7 billion. In 2027, there will be a surplus of €9.5 billion. Government Debt to GDP ratio is about 35%. This compares to other EU countries such as France with a debt to GDP ratio of 118%, and Italy with a ratio of 139%. The EU average is about 89%.
Admittedly, the GDP figure is distorted because of profits registered by multi-national companies. The Debt to Gross National Income figure is a less impressive 63%. But the debt figure is gross: before deducting the surpluses from the various Sovereign Wealth Funds—additional national reserves—which amount to about €30 billion. This is about equal to 14% of the State debt.
There are many countries that would envy such economic statistics! But success brings its own problems. The people expect the Government to improve their conditions. However, Jack Chambers, the Minister for Public Expenditure, said that the Government can mitigate the economic effects of the economic headwinds, but it cannot insulate the people from them.
Tax
The Government can make a case that the 2027 Budget did mitigate the effects of rising prices. Most of the Tax Reliefs were greater than the inflation rate of 4.1% (this figure includes energy costs which might decline). The Personal Tax Credit and Employee Tax Credit both increased by 6.25% (from €2,000 to €2,125) in each case.
The Standard Rate tax band increased from €44,000 to €46,500 (5.7%). One of the Opposition Parties made the point that this only benefited people with a salary greater than €44,000. But not keeping the Standard Band in pace with inflation would be a disincentive for workers on a modest income from seeking promotion or working overtime.
The 2% USC [Universal Social Charge] band increased from an upper limit of €28,700 to €30,300 (5.6%). The USC was introduced by Brian Lenihan, following the financial crisis more than fifteen years ago. His argument was that even people on a modest income should pay taxes. At present about a third of income earners don’t pay income tax. The USC, which is also a progressive system, is a means of counteracting this weakness in the tax system.
There was also relief for renters. The rent Tax Credit will increase by 15% to €1,150 and €2,300 for single and married couples respectively.
The “Help to Buy” maximum relief increased from €30,000 to €35,000 (16.7%). This scheme applies to first time buyers purchasing a house with a value of €500,000 or less. The Relief allows the purchaser to claim back income tax and DIRT [Deposit Interest Retention Tax] in the previous four years. This is a very generous scheme, reflecting the importance many Irish people attach to home ownership.
Another scheme introduced in this budget was a tax-free savings scheme. This scheme allows people to invest in Government-approved investment schemes without being liable for tax up to a limit of €50,000. The maximum annual contribution is €12,000 per year.
It might be wondered what problem this is intended to solve! In this regard, it is interesting to note that the stock of household bank deposits has increased by 5.4% in the first six months of 2026 (so, nearly 11% on an annual basis). The total amount of household domestic savings reached close to a massive €175 billion.
If there is a cost of living crisis it is not obvious from these figures! The ‘problem’ that these savers have is that the banks give them a very low interest rate (close to zero). The scheme seems to be designed for small savers. So, for example, a young couple renting a property have the opportunity to save for a deposit on a house without the value of those savings being eroded by inflation.
Of course, the other question that arises from this is: what the banks are doing with all these deposits! A large chunk is used to purchase low interest bonds from the European Central Bank. Very little is used to finance small business.
Other changes were on Gifts and on Inheritance Taxes. The Tax Thresholds were last increased in 2024. In the 2027 Budget the Group A threshold (parents to children) will increase from €400,000 to €420,000 (5%), the Group B threshold from €40,000 to €44,000 (10%), and the Group C threshold (non relatives) from €20,000 to €22,000 (10%).
Carbon Taxes
In general, taxes have a redistributive effect. Mostly the redistribution is from high income to low income households. But, in some cases, the tax reflects other social objectives. The most obvious example is the tax on cigarettes, which is a regressive tax. Lower income cigarette smokers have a much larger proportion of their income spent on cigarettes than higher income earners. But it is considered a desirable social objective to reduce cigarette smoking.
In the case of Carbon Taxes, the argument is a little less clear cut. But it is certainly true that the objective of such taxes is not to redistribute income from high earners to low earners. The criticism of such taxes is that, in many cases, a person cannot avoid choosing to drive to work because of inadequate public transport. For this reason the carbon taxes are perceived as exacerbating the “cost of living crisis” since it is difficult to avoid them by conforming to the desired social objective.
Of course, a desirable social objective is one thing; the effect it has on social groups is another. The road haulers’ capacity to paralyse the country has had its effect on Government policy!
Accordingly, the Government decided that the Carbon Tax on kerosene and natural gas will be reduced from €63.50 to €48.50 per tonne of CO₂ and will remain at this rate until 2030. (Originally the Carbon Tax rate on kerosene and natural gas was scheduled to increase to €78.50 per tonne by 1 May 2027.) Increases in Carbon Tax on petrol, diesel and other fuels will be deferred until 1st May 2027. A further increase will take place on 13th October 2027. The scheduled increase in the Carbon Tax on Marked Gas Oil (MGO), originally set for 1st May 2026, will be deferred to 1st May 2027. The scheduled increase for 1st May 2027 will also be deferred until 13th October 2027.
Minimum Wage
The Minimum Wage increased by 5.6% to €14.94 per hour. A few years ago most businesses did not have to worry about the Minimum Wage because their lowest-paid worker was paid well above this figure. But now it has become an issue because, over a long period, the Minimum Wage has been increasing well above the average increase in wages (never mind the inflation rate!). Of course, if the lowest earner has his salary increased, workers at higher rates must have their salaries increased to maintain relativities!
Part of this is being driven by the long-term increases in Social Welfare rates. To avoid poverty traps, wages at the lower end must increase. It could be said that all of this is a good thing. But, while social welfare is paid by the State, the increase in the Minimum Wage is an extra cost on business. Up until now there have been no adverse effects on employment.
Social Welfare
Most people on Social Welfare had their allowances increased by €10 a week. In most cases this amounted to a modest increase of between 3 and 4 per cent. Child Benefit did not increase, but Child Support—which is for social welfare recipients—increased substantially from €58 to €64 per week (10.3%) for children under 12, and from €78 to €84 (7.7 %) for children over 12.
Childcare
Like many essential services in Ireland, the provision of childcare is largely provided by the private sector, which is regulated, and partly funded, by the State. So, the universal subsidy, which is not Means-Tested, increased from €2.14 to €2.50 per child per hour with effect from September, 2027. The maximum subsidy, which is Means Tested, remains at €5.10 per hour, but the eligibility criteria were relaxed. So, the maximum income for full eligibility will increase from €34,000 to €38,500.
The discount for income assessment will also increase from €5,500 to €6,000 for families with two children; and from €11,000 to €12,500 for three or more.
It is difficult to disagree with the Deputy Leader of the Social Democrats, Cian O’Callaghan, who made the point that the bewildering array of supports for the private provision of childcare are an inefficient means of providing the service. The State should be more directly involved in providing the service.
The same argument applies to the State’s policy on housing.
Expenditure
In recent years public expenditure has increased by a massive 8% per annum. In the 2027 Budget the planned increase is anticipated to reduce to 6%. Minister for Finance Jack Chambers in his speech made the valid point that the focus should be on the Outputs of expenditure rather than the Inputs. A task force will be set up to ensure greater efficiency and eliminate bureaucratic obstacles to the development of infrastructure.
The Government plans to invest over a quarter of a trillion euros in infrastructure over the next 10 years
Last year, the Government injected €1.5 billion into the ESB to help finance the investment needed to increase capacity and integrate renewable energy.
A further €2 billion will be invested by Eirgrid in the coming years to boost the resilience of the grid as the country switches to renewables.
The Government is allocating €3 billion to Social Housing, delivering 11,250 new homes (€267,000 per home).
€5.5 billion will be allocated to the Department of Transport in 2027 (a 17.7% increase). In the National Development Plan there will be a €4.2 billion additional investment in Dart, Bus Connects, and in Cork Area Commuter rail. €6 billion is allocated to progress the Metro Link for the years 2027-2030.
€2.3 billion will be allocated to Uisce Eireann for 2027.
Conclusion
The budget for 2027 was more generous than the 2026 budget. There is a strong case for continued public investment in the economy, as currently infrastructure lags behind what is required for the level of development.
The case for increasing Tax Reliefs and Current Government expenditure is much weaker. In an economy of full employment, the effect will be inflationary. But, with the State running current budget surpluses, it is understandable that the purse strings were loosened.
