Budget 2026: An economic analysis

Budget 2026 is a generous fiscal package worth €9.4 billion. Judging by the reaction of many people, it could be described as a generous budget that felt like an austerity budget. This is even though spending was increased strongly in every department. However, the negative popular perception is largely because the personal tax burden was not eased and in fact the failure to adjust bands and credit is akin to an increase in stealth taxes. Instead, the tax measures were directed at business, with welcome changes to areas such as SARP and R&D credits.

Ahead of the budget the Minister for Finance had made it clear that there would be no changes to personal taxation, as the objective of the budget is to prioritise jobs and investment in the future of the economy. The budget was in theory framed as an enterprise budget, and not one designed to help workers.

As outlined in the Summer Economic Statement, the budget package is worth €9.4 billion. However, the composition changed. The tax package is reduced by €150 million to €1.3 billion, and the expenditure package is increased to €8.1 billion.  

The budget contained significant increases in expenditure, spread widely across many departments. This seems to be overlooked in much of the reaction to the budget.

• Gross voted current expenditure is projected to increase by €6.1 billion to €97.7 billion, an increase of 6.7 per cent.
• Gross voted capital expenditure is projected to increase by €2 billion to €19.1 billion, an increase of 11.7 per cent.
• An additional €2.0 billion in current expenditure is being provided to the Department of Social Protection.
• An additional €1.5 billion in current expenditure is being provided to the Department of Health.
• An allocation of €0.7 billion is being provided for public sector pay agreement costs, outside of Health and Social Protection.
• As agreed in the NDP, Budget 2026 will provide an additional €2 billion in capital expenditure to total of €19.1 billion.
• An additional €1.9 billion in current expenditure is being made available for other key expenditure sectors, which include Housing, Disability, Children, and Justice.

What the Department of Finance is projecting after Budget 2026

The following are the economic assumptions underlying Budget 2026. The Department is forecasting reasonable levels of real domestic growth out to 2026; increasing employment; and low levels of unemployment. These forecasts look realistic.

Economic forecasts underlying Budget 2026

Source: Department of Finance, Budget 2026, 7 October 2025

The medium-term fiscal projections underlying the budget project surpluses out to 2026 and a steady decline in the government debt/GNI* ratio. The vulnerability of the public finances to what the Department of Finance regards as windfall corporation tax receipts should be noted.

Despite the concerns about the vulnerability of corporation tax receipts, the take under this heading is anticipated to remain strong out to 2026.

Fiscal projections 2024-2028 underlying Budget 2026

Source: Department of Finance, Budget 2026, 7 October 2025

Concluding thoughts

The big story of the budget is the size of the spending package, with current spending budgeted to increase by 6.7 per cent, and capital spending by 11.7 per cent. The expenditure was spread generously across all departments.

Budget 2026, despite the overall size of the package, is unlikely to have a significant impact on economic activity in 2026. The social welfare increases will be soaked up by the various cost-of-living pressures that are still feeding through the system. Workers will not gain from a reduced tax burden. Irish households are now facing into higher property tax charges, higher energy prices, higher health insurance costs, and higher food prices.

The measures to help the SME sector are limited, and the hospitality sector will have to endure a 13.5 per cent VAT rate for the first half of the year, and a minimum wage increase six months earlier. The National Minimum Wage will increase by 4.8 per cent from €13.50 per hour to €14.15 effective from 1 January 2026, for workers over 20. This is up from €9.80 in 2019. The Low Pay Commission had recommended this increase. In addition, My Future Fund pension scheme, or in other words auto-enrolment, is due to commence on 1 January 2026. The net result is that the cost of employment of a worker on the minimum wage will increase by around 6 per cent in 2026. Furthermore, wage relativities will also be an issue.

Hopefully housing will get some boost from the various measures supply-side introduced, but housing in 2026 will remain the most significant challenge facing Ireland.  Budget 2026 was correct in not introducing demand-side policies.

The economic outlook for Ireland in 2026 still looks reasonably positive and continues to be supported by some solid fundamentals such as the health of the household balance sheet; the record level of employment; continued strong growth in tax revenues; and a politically stable backdrop. The main risks will emanate from the outside, with the uncertain global economic outlook, and the unpredictable policy approach of the US administration key areas of concern.

It is likely that Irish growth will decelerate modestly in 2026, with growth of around 2.5 per cent in modified domestic demand looking realistic based on what we know now.

Our Budget 2026 webinar, featuring leading economic analyst and commentator Jim Power along with a panel of Crowe Ireland experts moderated by tax partner Claire Davey, is now available to view on demand. Click here to to find out more about what Budget 2026 means for business owners across all sectors.