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WELL, THERE’S NO election on the horizon, that’s for sure.
After last year’s Budget gave something to everyone in the audience, Budget 2026 was more selective with its goodies.
Well, that’s not really true. The government is meant to have a rule where state spending should only increase by 5% per year.
As covered previously, that ‘rule’ has long since been tossed in the bin.
State spending will rise substantially in 2026, increasing by €9.4 billion to €117 billion – a jump of about 9%.
But with all that extra money being spent – where’s it going?
Most of it is for day to day spending. €2 billion for social welfare payments. €1.2 billion to the ever money-hungry health service. €1.2 billion for public sector pay rises.
Essentially, most of the extra cash is being spent just to keep the show on the road.
Which means that the extra money which was available for the ‘tax package’ of the budget was relatively limited. And here’s where we come to workers.
Most Irish workers will be worse off after Budget 2026.
This is because there was no change to the tax bands.
What does that mean?
Basically, it means that as people’s wages rise over time, more of their income falls into higher tax brackets.
We’ve previously gone into the details of how this works. To give a quick summary: inflation means if your pay doesn’t rise every year, you’re losing money.
Inflation is currently somewhere between 2% and 3%. But for the sake of keeping the numbers simple in this example, let’s pretend it’s 5%.
So if general inflation is 5%, and you get a 5% pay rise, essentially you’re no better off than before. For example, a salary of €50,000 rising to €52,500 in a year with 5% inflation.
But – there’s been no change to when the highest rate of tax kicks in. That hasn’t increased in line with inflation.
So a worker on €50,000 in 2025, who gets a pay rise to €52,500 in 2026, is no better off.
Actually – they’re worse off because of that higher tax band still kicking in at €44,000.
When earning €50,000 the worker paid higher taxes on €6,000 of their income.
Now, they pay it on €8,500 of what they earn – even though their pay is just keeping up with inflation.
The net impact is, the worker will pay a few hundred euros per year extra in tax. They’ll be worse off.
By contrast – tax bands were raised in last year’s budget. The threshold for the higher rate of tax was increased by €2,000, to €44,000.
Of course, last year’s budget was a pre-election giveaway. Whereas this year’s is meant to have been more of a belt-tightening exercise.
The government has been trying to sell the image that it’s ‘prudent’. Finance Minister Paschal Donohoe said state spending must rise at a level that is “safe and affordable”.
“Inflation has moderated, the size of our budgets must moderate too,” he said.
And perhaps workers would understand that now is not the time for raising the tax bands. After all, the state has become worryingly reliant on corporation tax.
The Irish Fiscal Advisory Council (IFAC) estimates that without so-called ‘windfall’ receipts, Ireland would be on course to run a €14 billion budget deficit.
Given that Ireland’s corporate tax is sourced in large part from US multinationals shifting profits through here, and the US is actively trying to stop that process, there’s logic to be careful.
Which makes it all the more baffling that the government has just given a massive tax break to the restaurant sector.
The hospitality VAT cut will cost the state almost €700 million a year in foregone tax revenue.
As detailed previously (and as pointed out by Labour’s Ged Nash), this measure is based on no hard evidence.
What’s the connection to tax bands?
Well, government ministers / senior anonymous political sources made it very clear that the reason there wouldn’t be money for income tax changes is due to the amount going towards the hospitality VAT cut.
IFAC estimated that the money used for the hospitality VAT cut was “equivalent to the cost of increasing the standard rate income tax bands by €3,000”.
This would be worth €600 a year to an average worker, before accounting for other tax credits and charges.
It’s worth noting that there is a very small reduction in the universal social charge (USC), due to the minimum wage rising. However, this will be more than cancelled out by an increase in PRSI.
So why will Irish workers be worse off after Budget 2026?
Those who do get a salary increase, will pay more tax.
Those who don’t, will lose buying power due to inflation.
Why was this decision made, is perhaps the real question.
The argument that the public finances are in a delicate place given the huge reliance on corporate tax is a fair one.
However, this logic falls apart when you consider you have government ministers citing the need for prudence. And then, in the very next breath, defending forfeiting almost €700 million a year on the hospitality VAT cut.
Essentially – as always on budget day, a choice was made. And this time, the ball has bounced in favour of restaurants, and against workers.
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