IF THERE IS a bad outcome from the US tariff negotiations, the government will have to re-think this year’s €9.4 billion Budget 2026 package, ministers confirmed today. 

The government outlined today that €1.5 billion tax cuts will form part of next year’s budget.

Overall, there will be €7.9 billion spending package, an increase of 7.3% for next year.

Announcing the publication of the Summer Economic Statement (SES), which sets out the parameters of October’s budget, Finance Minister Paschal Donohoe also set out that there will be “trade-offs” if the hospitality VAT rate is reduced. 

“I have always made clear my intention with regard to that and that is set out very clearly in the programme for Government. But I have also said there are trade offs and there are consequences to that. And there are therefore other things that we are not going to be able to do.

“I think it is really important to be open about what the trade offs are. If you were to bring forward a tax package that was to fund a full year measure that was in relation to the VAT, the cost of that would be nearly a €1bn. And then if I was to add to that other measures we’ve done in the past, we would have a tax package that is far bigger than what I believe would be safe,” he said. 

Donoghue added that government is preparing the budget at a time “when the global tariff landscape is in a state of flux”. 

“Our budget decisions could change depending on the economic environment we find ourselves in,” said Donohoe when asked how safe the €9.4bn package is if negotiations go downhill. 

The minister said that capital investment will be protected, while earlier in the day Taoiseach Micheál Martin stated that it would be current spending that would come under pressure is such an eventuality. 

Last week, US president Donald Trump said that deal between the US and EU to prevent the implementation of 30% tariffs on European goods exported to America is “possible”.

Negotiators are under renewed pressure to strike a deal after Trump threatened earlier this month that the 30% tariff would be in place for the EU if a new trade agreement was not reached by 1 August.

The Tánaiste told Cabinet that a 30% tariff rate on goods from the EU could accelerate potential job losses in Ireland. He previously stated that he believed the landing zone will be 10% tariffs, but there are fears that it could be slightly higher. 

If US tariff talks go downhill, government will ‘recalibrate’ its budget strategy, says Finance Minister Paschal Donohoe.

Right now, the tax package is €1.5bn while spending package is €7.9bn.

Minister Chambers says govt is having to navigate serious economic uncertainty. pic.twitter.com/1RztjPoRQC

— Christina Finn (@christinafinn8) July 22, 2025

Donohoe defences workings based on 0% tariff scenario

Despite being told the 10% tariff predictions is “baked in” to government thinking, Donohoe confirmed today that the SES is based on 0% tariff scenario. 

Pushed on why the government went ahead with the publication of the SES today when it is based on tariff predictions that the government does not even believe will happen, the minister said the government had to outline the capital spending plan for 2026. 

The government is considering “a number of different scenarios regarding what could happen to trade between the US and the EU”, said Donohoe.

On Budget day, on 7 October, the government will publish its estimate regarding what it believes is the most likely outcome for 2026. Donohoe also said if it is appropriate, the government will also publish a number of different alternatives.

The SES states that a “deterioration in the tariff landscape, government will recalibrate its fiscal strategy”.

There would be a reduction in the budgetary package and the government said this would be required to “ensure that the public finances remain on a sustainable trajectory”.

Any increase in the scale and/or scope of tariffs could have a “potentially large adverse impact on the Irish economy and public finances”, said the statement. 

The government also warns that a “tit-for-tat escalation” in tariffs between the EU and US would be “especially problematic for Ireland”.

The statement adds that the “public finances are not as healthy as the headline figures suggest”.

It notes that while the headline budgetary position is in surplus, this is “almost entirely due to a handful of large corporate taxpayers”.

It also warns that issues such as an aging population and the need to phase out fossil fuels and greenhouse gas emitters will have “profound implications for the Irish economy and for the public finances”.

With reporting by Christina Finn