Irish Government to Focus on VAT Cuts and Housing Spending in 2026 Budget

Strategic Insights -

The Irish government is set to prioritize reducing VAT for the hospitality industry to 9% and increasing spending on housing in the 2026 budget, with "little to no" income tax cuts expected. In a move away from recent budget decisions, the government has decided to focus on supporting the tourism and hospitality sectors, which have been impacted by global instability and the pandemic. The budget discussions have centered on extending the lower VAT rate on electricity bills and introducing measures to increase housing supply, including decreasing costs for developers.

Key Takeaways:

  • The 2026 budget will focus on reducing VAT for the hospitality industry to 9% from 13.5%, with the lower rate set to be extended into 2026.
  • The government has decided to move away from income tax cuts, with senior government sources stating there will be "little to no income tax cuts" in the 2026 budget.
  • The budget will include measures to increase housing supply, such as decreasing costs for developers, especially apartments.
  • The government will also extend the lower VAT rate on electricity bills, which was fixed until October.
  • The rent tax credit is set to be extended, but details have not been finalized yet.
  • The government has committed to "progressive changes in taxation" if the economy remains strong, including indexing credits and bands to prevent an increase in the real burden of income tax.
  • Fine Gael has stressed its commitment to reintroducing the 9% VAT rate for the hospitality sector, despite the lack of income tax cuts.

Statistics:

  • €1.4 billion in tax cuts were introduced in last year's pre-election budget.
  • The top rate of tax entry point was increased, and personal tax credits and the universal social charge were also raised.
  • Inheritance taxes were reduced significantly in the 2023 budget.
  • The Irish economy had significant reductions in income tax and widened tax bands, but this will be reversed in the 2026 budget.
  • The budget discussions have centered on the impact of global instability on the Irish economy, including the possibility of a trade war with the US.

Sources:

  • An Bord Snip Nua
  • Goodbody Stockbrokers
  • Irish Independent
  • RTÉ News
  • The Irish Times
  • The Journal