Budget 2027: Balancing employee relief and employer burdens

The key question for Budget 2027 is whether Government will use the available fiscal space to give workers meaningful relief, while employers continue to absorb rising labour costs and compliance obligations.

Backdrop

The Minister for Finance has a delicate balancing act in Budget 2027. Budget 2026 did not include an income tax package, despite continued pressure on households from costs such as heating and transport. At the same time, the tax base remains strong: the year-end tax take is estimated to be 6% higher than in 2025, while income tax is expected to rise to 35.2% of total tax receipts. With a reported €1.5 billion available for tax measures, expectations are naturally high. Employees will be looking for relief after a period of sustained cost pressure, while employers will be alert to any measures that add to payroll cost or compliance obligations.

What do we know?

Several measures due to take effect in or around 2027 have already been flagged by Government. These include:

• PRSI increases for both employers and employees from 1 October 2026, with the employer rate increasing to 11.4% and the employee rate increasing to 4.35%;
• A likely increase in the national minimum wage from €14.15 to €14.95, reflecting the Low Pay Commission recommendation, with the usual consequential adjustment to the second USC band; and
• Changes to the company car benefit in kind regime, with the temporary OMV deduction reducing by €5,000.

What can we expect?

The government has committed to indexing credits and tax bands to wage growth where economic conditions permit.  The Department of Finance has estimated that wage growth in 2027 is expected to be 4%. 

If Government follows through on that commitment, the standard rate band and main personal tax credits could increase by approx. 4%.

In practical terms, that would mean an €80 increase in the main personal credits and a €1,760 increase in the 20% standard rate band for a single individual. The full-year cost of those measures is estimated at €1.16 billion.

Whether any remaining balance from the reported €1.5 billion tax package is used for further income tax measures remains to be seen. That seems less likely if Government also wants room for changes in Capital Acquisitions Tax and other areas. 

Beyond 2027

Looking beyond Budget 2027, the direction of travel is clear: employers are likely to face increasing compliance obligations and higher employment costs.

• E-invoicing (real time VAT reporting & payment);
• E-withholding tax (in the areas of RCT, PSWT and certain platform operators).

Furthermore, PRSI increases can also be expected into 2028 and beyond.  Similarly, auto enrolment costs on employers will continue to rise with the employer contribution rate increasing to 6% by 2036.

In the meantime, the legislation underpinning the EU Pay Transparency Directive is expected during 2027, bringing associated obligations and potential reporting requirements for employers.

In short, employers are operating in an environment of increasing complexity and cost.

For employers, the practical message is to plan early. Budget 2027 may bring some relief for employees, but the wider direction points to higher employment costs, more reporting, and a greater need for careful workforce tax planning.