Paschal Donohoe (Dublin Central, Fine Gael)

Introduction

Budget 2026 will invest in our future while securing the jobs, prosperity and stability of today. It will tackle the serious challenges of meeting our housing and investment needs. At the same time, we are preparing for tomorrow. This budget builds up our resilience and will help us to adapt at a time of historic challenge and change for our economy and our society. This budget is the first of this Government’s term. We will continue to deliver for our citizens over the course of the next four budgets and in the years ahead.

Transformation and Challenge

Our economy has proven to be remarkably resilient. This is due to the transformation of our country in recent decades. There are 2.8 million people at work in Ireland today; more than lived here in 1961. People are also living longer and healthier lives than ever before. Life expectancy today is 83 years of age; ten years above expectations just four decades ago. The number of adults with a third level qualification has tripled in a generation.

We have also made huge progress in restoring our public finances to health. Our debt ratio is moving in the right direction and has almost halved since I delivered my first budget to the House in 2016. While we should reflect on this progress, of which I believe we can be proud, we also clearly understand that not everyone feels the benefits of this in their daily lives. For many, concerns about their cost of living and access to a home remain paramount.

To make the case for the progress we have made is also to acknowledge that we need to achieve more and we need to achieve more in a world that is dramatically changing.

Uncertain Times

The certainties that have underpinned our transformation as a country are now being called into question. Uncertainty is the defining feature of the economy of the world this year. While the international order has been shifting for over a decade, this year saw greater fragmentation as widespread tariffs were introduced. The world has been pulling away from its near-universal commitment to free and open trade, a commitment that benefited many.

Our fortunes are connected to the world around us. Peace and partnership have been the drivers of our economic and social progress in recent years. Ireland will always be a global voice for, and champion of, co-operation and trade.

It is regrettable that tariffs were introduced but the recent EU-US trade agreement is still a better outcome than the alternative of higher tariffs and, ultimately, even greater uncertainty. Nonetheless, tariffs will, of course, impact growth in the coming years.

The question then arises as to how we respond to this challenge and how we respond to a changing, more difficult international environment, and rise to these challenges. How do we do this? We do this with a plan to strengthen the resilience we have shown in the past, underpinned by a sensible budget that will safeguard our future. That is how.

A Positive Future

It is more pressing than ever that this Government presents a budget that protects jobs and supports growth. My Department is projecting modified domestic demand - the best measurement for our domestic economy - to grow by 3.3% this year and by 2.3% next year. Domestic activity is expected to be supported by continued strength in our jobs market, which, thankfully, has proven remarkably resilient to our many and recent shocks. Since the onset of the pandemic, we have added more than 440,000 jobs to our economy. This is a historic achievement for Ireland. It has been driven by record levels of women at work, as well as people coming to work in Ireland. Our strong labour force, the backbone of our economy, is diverse and there is strength in that diversity.

This budget will protect jobs and build on our progress. Looking ahead, we expect to add a further 63,500 jobs by the end of next year, with our economy remaining at full employment in the coming period. Real incomes are also expected to grow, helped by lower inflation, which is forecast to remain at around 2% next year. All of these forecasts have been endorsed by the Irish Fiscal Advisory Council.

However, I and the Government are still acutely aware that prices remain high. For many necessities, including food, prices are still going in the wrong direction. This budget seeks to address this through targeted supports for those most in need in a way that is affordable for Ireland.

We also need to invest. This is why the updated national development plan published and delivered by the Minister, Deputy Chambers, in July commits to €275 billion of capital expenditure over the next ten years. This strategic investment will support our energy, water, housing and transport sectors. These are areas that are critical to making Ireland a better place in which to live and work, while improving the competitiveness of our economy for domestic and foreign investment. This is about jobs; it is about stability at a time of global challenge. This investment will not alone increase the potential of our economy, it will boost growth and job creation in the short and medium term. This, in turn, will further safeguard and improve the lives of our citizens.

Our Public Finances

Due to the hard work of the people of Ireland and the right policy choices, the Government is in a strong position to be able to protect our economy and the public services that underpin it. Our public finances are in good shape. Today’s budgetary package is €9.4 billion, as set out in the summer economic statement. A total of €8.1 billion will be allocated for public spending and €1.3 billion will be allocated for taxation measures. I have reduced the tax package by €150 million to facilitate additional spending in targeted supports for the most vulnerable, while maintaining an unchanged total budgetary package. We must continue to control the rates of day-to-day spending on a level that is safe and affordable; one that reflects the reality of where we are today. Inflation has moderated; the size of our budgets must moderate too. Every budget is about choices. No budget can do everything, nor should it attempt to. The one-off measures of recent years must be replaced by more targeted and permanent supports, giving greater certainty to people.

The Minister, Deputy Chambers, and I are making the best possible use of the resources available to invest in our future and to strengthen our foundations. Similarly, we should have a tax package that does not put our economy at risk. To safeguard against risk, we are running budget surpluses, reducing public debt and building up funds so that we are prepared for the future. We have run general government surpluses over the past three years. For this year, the surplus will be €10.2 billion and next year the surplus will be €5.1 billion. The debt to GNI* ratio - the way we measure the ability of our economy to sustain a certain level of debt - has now declined by more than 40 percentage points relative to the pandemic-related peak. The Government will submit a medium-term fiscal and structural plan to the European Commission in the coming weeks to ensure that, like all EU countries, this and future budgets are sustainable and affordable and keep our public finances and people safe.

Reliance and Resilience

Our corporation tax revenues have allowed us to respond to challenges, such as the pandemic and the cost-of-living challenge. However, we all know the degree of our volatility in these receipts. We know over-reliance is a risk. In addition, international tax negotiations to design a system that achieves a fair and balanced approach to global minimum taxation and one that accommodates the US tax system, while maintaining a level playing field for all, are still ongoing. There is still considerable uncertainty. That is why we continue to put money aside in the two long-term savings funds – the Future Ireland Fund and the Infrastructure, Climate and Nature Fund - to help us to deal with the demographic and structural challenges that may await and the challenges we may not yet be aware of. By the end of next year, my Department projects these funds will have built up to around €24 billion - an investment to protect future generations. By the end of this Government’s term, we expect to have more than €40 billion built up in these long-term funds. This will allow us to face the challenges of the future from the best possible position.

HOUSING

However, we must also be conscious of the challenges we face today, first among them being housing. In preparing this budget, it has been to the forefront of our minds. For first-time buyers, for aspiring homeowners and for those attempting to negotiate and navigate the rental market increasing supply is key. The Government is determined to use all policies at its disposal to increase supply and alleviate pressure, so that more people can have access to a home. That is why we have committed over €5 billion in capital investment for housing delivery next year, in addition to investment by the Land Development Agency, LDA, and approved housing bodies. We have legislated for the biggest changes to the planning system for a generation. We are implementing the national planning framework, so that homes are built where they are needed. We have made significant changes to the design of homes to help them become them more affordable.

Home Building Finance Ireland provides finance to home builders across the country and additional funding will be made available to SMEs. To ensure they have the capacity to fund such home builders, I have consented to €200 million of additional external funding to support this objective. I have also considered how our tax system can support additional supply, promote regeneration and tackle dereliction.

VAT on Apartments

I am reducing the VAT rate as applied to the sale of completed apartments to 9% from 13.5%, effective from tonight until 31 December 2030. This is to help address the viability gap in apartment construction as part of a social policy to deliver more and higher density apartments. I will introduce a financial resolution to give effect to this decision this evening.

Residential Zoned Land Tax

The residential zoned land tax introduced in budget 2022 came into effect on 1 February 2025. This was designed to increase the national stock - the amount - of zoned and serviced land to deliver homes across our country. So far, there have almost been 2,000 returns filed. Of these, 526 have requested the deferral of the tax because the land is being actively developed within planning timelines. This shows that the objective of the tax is being met. Today, I announce another opportunity for landowners to avail of an exemption in 2026 if they seek to have their land rezoned to reflect the genuine economic activity being carried out. The exemption will be considered by local authorities based on guidelines by the Minister for Housing, Local Government and Heritage. Further changes to enhance the operation of the tax will be brought forward in the finance Bill.

Cost-Rental Housing

In line with the Government’s commitment to accelerate the delivery of affordable homes, I am exempting the rental profits arising from homes that fall within the cost-rental scheme from corporation tax. This exemption will apply to all developments that are designated as falling within the cost-rental scheme by the Minister for Housing, Local Government and Heritage from on or after 8 October 2025.

Construction Costs

To further incentivise the provision of new homes, I am also introducing an enhanced corporate tax deduction for certain costs incurred on the construction of apartment developments and for the conversion of non-residential buildings into apartments. This is to improve the viability of these developments.

It will be available for projects where a commencement notice is submitted on or after 8 October 2025, and on or before 31 December 2030.

Living City Initiative

Turning now to our larger cities, the living city initiative supports the enhancement of older housing and commercial properties in the designated special regeneration areas in Cork, Dublin, Galway, Kilkenny, Limerick and Waterford. I am making the following substantial changes to strengthen the scheme: I am extending it to the end of 2030; I am increasing its scope for residential properties from those built before 1915 to those built before 1975; furthermore, I am amending the scheme to support the use of "over the shop" premises for residential purposes; where the works are carried out by enterprises, the maximum amount of relief available will be increased from €200,000 to €300,000 and I am providing greater flexibility on the time period over which the relief can be claimed; and finally, over the coming period, I plan to add the five regional centres under the national planning framework to the scheme. These are Athlone, Drogheda, Dundalk, Letterkenny and Sligo. Adding special regeneration areas to these towns will require careful planning and preparation by the relevant local authorities.

Derelict Property Tax

We are also aware that dereliction continues to be a blight on our towns and cities. We need to bring those properties currently lying empty back into use. To target the activation of this housing stock, and in an attempt to breathe new life back into those towns and villages, I am today announcing the introduction of a new derelict property tax, which will be implemented and collected by the Revenue Commissioners. With the agreement of the Minister for housing, this new tax will replace the derelict sites levy, which is currently charged at a rate of 7% on the site market value. I do not intend for the new tax to be charged at a lower rate than this. I intend to bring forward legislation providing for the derelict property tax in 2026. Preliminary registers of dereliction will be published in 2027 and the tax will be implemented as soon as possible after that date.

Residential Development Stamp Duty Refund Scheme

The residential development stamp duty refund scheme is due to expire at the end of this year. In the Finance Bill, I will extend it until the end of 2030. This scheme provides for a partial repayment of the stamp duty paid on a deed of conveyance or transfer of land where the land is subsequently developed for residential purposes. To improve its effectiveness, I am also making a number of changes to the scheme, including extending the two time limits that apply - for acquisition to commencement and commencement to completion - from 30 months to 36 months where an application for a stamp duty refund is made in respect of a large-scale residential development. I am also providing for a full stamp duty refund to be claimed in respect of a multiphase development at the commencement of the first phase of that development.

Retrofitting Deduction for Landlords

To continue supporting the upgrading of rental housing stock, I will be rolling over the income tax deduction for small landlords who retrofit their properties for a further three years.

These measures are designed to encourage more stock into our housing market and to support the development of more and higher quality homes.

MEASURES TO SUPPORT HOUSEHOLDS

Personal Income Tax

As I have said previously, budgets are about choices. This budget boosts our economic resilience and keeps our public finances safe. It maintains our competitiveness and ability to protect jobs. It also means the challenges we face in housing and investment can be delivered for households and business across the country. The scope for significant personal tax changes is therefore limited. Government is committed to measures that will improve the overall standard of living, with a focus on affordable and permanent changes in the budget. However, over the lifetime of this Government, I will stand by our commitment to make progressive changes to income tax, if and when our economy remains strong.

Today, I am announcing targeted changes to USC. As of 1 January 2026, the national minimum wage will increase by 65 cent per hour to €14.15 per hour. Accordingly, I will be increasing the ceiling for the 2% rate band by €1,318 to €28,700. This increase will ensure that full-time workers on the minimum wage will remain outside the top rates of USC, while also giving a modest benefit to all workers whose incomes are above that amount. I am also extending the USC concession that applies to those who have a full medical card and earn less than €60,000 per year so that the reduced rate of USC continues to apply for a further two years until the end of 2027.

Rent Tax Credit

Where our renters are concerned, I am conscious of the cost pressures faced by so many individuals and families. The rent tax credit was introduced in budget 2023 and has proven to be a very meaningful support for renters, with almost 400,000 people benefiting from it in 2023. The credit is due to expire at the end of this year. I am announcing that I am extending it for a further three years, to the end of 2028, in a bid to alleviate the pressure through what is an important tax measure for many.

Mortgage Interest Tax Relief

To support homeowners, I am extending the mortgage interest tax relief for a further two years with a reduced value applying in the final year.

Extension of the 9% VAT Rate on Gas and Electricity

Conscious of the fact that energy prices remain high, I am extending the 9% rate of VAT on gas and electricity bills until 31 December 2030, with a Financial Resolution on this matter later this evening. This should go some way to alleviating energy cost pressures across the year for households.

JOBS & INVESTMENT

Promoting Investment and a Supportive Business Environment

Turning to our businesses, the Government has been proactive in its reaction to the challenging global environment. Along with our EU partners, we are committed to unlocking the potential of the EU Single Market, which offers enormous opportunities. In February of this year, the Tánaiste convened the first meeting of the Government trade forum to help us better understand the changing trade landscape that impacts on many firms in many different sectors. Building on this, the recently published Government action plan on market diversification and the action plan on competitiveness and productivity lay out our strategy for ensuring the resilience of our economy while further boosting competitiveness. This budget represents a significant intervention by the Government to protect these jobs and businesses and to support them in the future.

Reduced 9% VAT Rate for Hospitality Sector and Hairdressers

In line with the commitment in the programme for Government to further support businesses and help them to retain jobs, I am reducing the VAT rate from 13.5% to 9% on food and catering businesses and for hairdressing services. The measure will come into effect from 1 July 2026. This will cost €232 million in 2026 and €681 million in a full year. It reflects our commitment to support businesses in the services sector that are facing increased cost pressures. Furthermore, it will support more than 150,000 jobs in these sectors right across the country.

Research and Development Tax Credit

As a key driver of economic growth and high value employment, research and development supports are critical to our continuing competitiveness in a challenging global environment. Recognising this, and following a review undertaken by my Department this year, I am making several improvements to the regime, including increasing the rate of the credit from 30% to 35%; and increasing the first-year payment threshold from €75,000 to €87,500 to support smaller research and development projects. I will also be publishing a research and development compass in the coming weeks, which will consider targeted changes to the research and development tax credit to better align with industry practices, for example, in the areas of outsourcing and qualifying expenditure definitions.

It will also set a pathway for development of innovation supports.

Participation Exemption

I am committed to delivering tax simplification for businesses. Last year, a participation exemption for foreign dividends was introduced to simplify double tax relief and enhance our competitiveness for multinational companies. I will be updating and enhancing those rules by expanding their geographic scope to include jurisdictions where non-refundable withholding taxes apply, and to provide for a number of technical amendments to improve the scheme.

Ireland's Interest Regime

On that theme of competitiveness, it is crucial that our tax code is attractive to investment and is aligned with international best practice. Accordingly, I am publishing an action plan today to reform our tax regime for interest. This plan is informed by responses received to an extensive consultation on the tax treatment of interest in Ireland. The primary request arising from that consultation is for a fundamental reform of the underlying framework for the taxation and deductibility of interest. The phased approach of the plan will progress reforms to achieve a simplified regime that supports competitiveness and protects our tax base. In this regard, a feedback statement will be published in November for further consultation.

Visual Effects

To respond to specific competitive challenges being faced by the visual effects sector, I am today announcing an improvement to the section 481 film tax credit to provide for a new 40% rate of relief for productions with a minimum of €1 million of eligible expenditure on relevant visual effects work. This rate will apply up to a maximum of €10 million per production.

Digital Games

We have seen the creativity and success of our digital games sector. To provide certainty to that sector and encourage its continued growth, I am extending the digital games tax credit for six years to 31 December 2031. The credit will also allow for claims in respect of post-release content work where the original game availed of the digital games tax credit. Further detail of this will be in the Finance Bill. As the proposed changes to the visual effects and digital games incentives are approved State aids, they will be notified to the European Commission and introduced subject to commencement orders.

Revised Entrepreneur Relief

We also know that entrepreneurs are vital to the creation of jobs and to supporting economic activity across the country. The Government is maintaining and is committed to continuing to maintain a tax system that supports them. I am enhancing the existing capital gains tax revised entrepreneur relief by increasing the lifetime limit on gains to which the relief applies from €1 million to €1.5 million for disposals made from 1 January 2026. This change will help ensure the capital gains tax system supports entrepreneurs who are looking to grow their businesses and take on new challenges.

Key Employee Engagement Programme

The key employee engagement programme is also due to expire at the end of 2025. Following engagement with stakeholders in relation to this scheme, I will extend it until the end of 2028 subject to approval from the European Commission.

Special Assignee Relief Programme

I have already spoken about the important role that foreign direct investment plays in our economy through the creation of employment and the expansion of businesses. I am therefore extending the special assignee relief programme for five years, while also increasing the minimum qualifying income to €125,000 to ensure the relief is appropriately calibrated. I will also simplify the administrative requirements and will set that out in the Finance Bill.

Foreign Earnings Deduction

As an open economy, our economy is deeply integrated into global trade flows. We are exposed to external economic downturns or volatility. The foreign earnings deduction is an important incentive for employees that supports Irish firms in exploring and expanding into new export markets. I will extend the scheme for a further five years. I am also increasing the level of relief available to €50,000 and extending the scheme to include the Philippines and Türkiye.

VAT Modernisation and Electronic Invoicing

Recently agreed changes to EU VAT law will reshape our VAT administration environment to better recognise and facilitate how we trade, while strengthening the capacity of tax systems across the EU to tackle VAT loss. To that end, the Revenue Commissioners will begin a phased roll-out of domestic electronic invoicing arrangements for business-to-business transactions. It will publish further details on this tomorrow.

Withholding Taxes

Withholding taxes are an important feature of our tax system. I wish to explore opportunities to modernise and digitalise them and further expand their scope as we continue to adapt and respond to new and developing business models. A joint public consultation on this topic between the Department of Finance and Revenue will be launched soon. All of these measures will contribute to the creation and retention of jobs. Better use of our savings can also contribute to this objective.

Withholding taxes are also an important feature of our tax system. I want to to explore opportunities to modernise and to digitalise them and to further expand their scope as we continue to adapt and respond to new and developing business models. A joint public consultation on this topic between the Department of Finance and Revenue will be launched soon. All of these measures will contribute to the creation and retention of jobs. Better use of our savings can also contribute to this objective.

FINANCIAL SERVICES

Savings and Investment

The EU savings and investments union aims to make it easier, safer and cheaper for people to invest. This gives citizens a better return and helps to fund businesses that can grow. In recognition of the importance of encouraging retail investment, today I am reducing the tax rate that applies to Irish and equivalent offshore funds and foreign life assurance products from 41% to 38%. Reflecting the complexity of the tax framework for retail investment and to facilitate due consideration of the Funds Sector 2030 report, I will publish a roadmap early next year setting out how we will simplify and adapt the tax framework to encourage investment. This will take into account the recent European Commission recommendation on savings and investment accounts. Of course, we will do this because Ireland is in a leading position in the investment funds and asset management industry globally and has a sector that supports almost 37,500 jobs across our country. We will publish an implementation plan for this sector today. That report recommended a public consultation on potential options for an entity level tax for Irish real estate funds, IREFs. I do not propose to progress that recommendation. However, my Department will undertake a public consultation on proposals to simplify the IREF regime without limiting its effectiveness.

Stamp Duty Measure for Irish SMEs and Start-ups Trading on Regulated Markets

In order to support these capital markets, I am introducing a new market cap exemption stamp duty threshold of €1 billion for Irish SMEs and start-ups trading on regulated markets. For companies below this threshold, the 1% stamp duty charge paid on share transactions will not apply. This change is essential to the growth of homegrown businesses, especially those that want to grow internationally.

Bank Levy

Finally, I believe it remains appropriate that the banking sector continues to make a contribution to the Irish economy. Therefore, I am extending the bank levy for one further year, with a target yield of €200 million.

AGRICULTURE

I have acknowledged that domestic and foreign investment are key to our economic growth. So too is the success of our farming sector. I acknowledge the report of the Commission on Generational Renewal in Farming. This report looked at farm succession in particular and made a series of recommendations, including the extension of four tax relief schemes that are specific to this sector and that were due to end this year.

I have considered this matter and have decided to extend the farm consolidation stamp duty relief, the farm restructuring CGT relief, and the young trained farmer stamp duty relief to the end of 2029. I am also expanding the scope of farm restructuring relief to include woodlands and forestry.

In addition, in order to continue to help farmers to meet emission targets, and to address our shared environmental challenges, I am announcing an extension of the accelerated capital allowance scheme for slurry storage facilities for four more years. It continues to be important that these measures constitute state aid and, therefore, must comply with EU state aid rules.

CLIMATE

In support of climate policy, the Finance Act 2020 legislated for annual increases in the carbon tax out to 2030. This year’s increase, which brings the tax to €71 per tonne of CO2 emitted, will be applied to auto fuels with effect from tomorrow and to all other fuels from 1 May 2026.

See this speech in context