Income tax and the Exchequer
In the first eight months of 2025, income tax receipts of €23.2 billion have been taken in by the Exchequer, up €1 billion (4.7%) on the same period last year. While Ireland’s unemployment rate, at 4.7% for August 2025, is below the EU average, we’ll need to monitor this closely to determine whether tariffs will impact the labour market here.
Income tax bands, rates and credits
The Programme for Government commits to “implementing progressive changes in taxation if the economy remains strong, including indexing credits and bands to prevent an increase in the real burden of income tax”.
The cost of indexing the standard rate band, resulting in an increase of the 20% standard rate cut-off point by €1,760 to €45,760, is €445 million for a full year. By comparison, an increase to €45,000, a €1,000 increase, would cost €255 million, and a 1% decrease in the higher income tax rate to 39% would cost €540 million for a full year. Given the limited budget allocated to tax cuts, the more modest standard rate income tax band increase appears most likely.
The Programme for Government 2025 includes a commitment to encourage exercise and health measures, including gym membership. This could be achieved through an income tax credit for gym membership, with an expected cost of €65 million to the Exchequer. However, the Tax Strategy Group hasn’t recommended its implementation, noting that such a measure is unlikely to have any tangible impact on public health compared to other measures such as funding sports clubs directly.
PRSI
Increases to both employer and employee PRSI rates of 0.1% are already set to take effect from 1 October 2025, ahead of Budget 2026. This will bring Class A PRSI rates to 4.2% for employees and 11.25% for employers. Faced with an aging population and rising state pension costs, legislation for larger increases is already provided for (0.15% in both 2026 and 2027 and 0.2% in 2028).
Cost of living
In recent years, the Government has resorted to one-off “cost-of-living” measures in successive budgets to address spikes in energy costs, housing and other living expenses. While these interventions provided short-term relief to households, the untargeted nature of the supports drew criticism. The Minister of Finance has clearly stated that payments of the same scale and nature can’t continue, emphasising that measures need to be permanent, affordable and targeted.
Housing affordability continues to pose significant challenges for employers and individuals. The average age of first-time buyers has risen dramatically, highlighting growing barriers to entering the residential property market. Meanwhile, national average rents for new tenancies soared by 6.4% year-on-year in the fourth quarter of 2024. These figures underscore the pressing need for effective measures to alleviate these burdens and make housing more accessible and affordable.
A review of the rent tax credit is currently being undertaken by the Department of Finance, to be completed before the Budget. Removing or deferring the sunset clause on the rent tax credit (RTC) beyond its planned cessation at the end of 2025 would offer continued relief for renters struggling with rising costs. The most recent figures available for the RTC are from 2022 and show a cost of €156 million. The Tax Strategy Group (TSG) has modelled that an additional increase of €500 to the RTC for a single person may cost upwards of €95 million for a full year.
An extension, and potential increase, to the tax relief for micro-generation of electricity would be welcomed by households currently availing of it. With a current sunset date of 31 December 2025 and an estimate of approximately €7 million in tax foregone, this would be a relatively low-cost ‘sweetener’ that the Government could adopt to further its environmental agenda.
There’s also pressure to support parents with childcare, where challenges remain acute both from a cost and availability perspective. Affordability was a key election promise, and announcements of fee caps for childcare services have recently been announced, along with core funding increases for childcare providers. However recent statements by An Taoiseach, Micheál Martin indicate the focus this year may be on increasing childcare places rather than reducing costs or providing further subsidies to parents.
Employment-related measures
Given the current economic headwinds facing Ireland, not least the tariffs recently imposed by the US, increasing the ability to attract and retain key talent will be paramount in Ireland remaining at the forefront for foreign direct investment.
The Government has received calls from many quarters to extend the Special Assignee Relief Programme (SARP) beyond its current sunset date of 31 December 2025. We may see an extension of SARP, but with some tweaks, such as:
- removing or increasing the current €1 million cap on the amount of income;
- extending the relief to include USC and PRSI;
- increasing the qualifying period from five to eight years;
- extending the 90-day deadline for notifying Revenue of intention to claim the relief; or
- there might be some tightening in the associated tax exemptions (e.g. related to school fees).
Given the potential need for Irish businesses to explore new markets for trade, it’s likely the Foreign Earnings Deduction (FED), due also to expire on 31 December 2025, would be in line for extension. FED provides tax relief for qualifying travel to a number of countries across Africa, Asia, South America and the Middle East.
It’s anticipated that employers and employees will face increased costs of employment in 2026, including the following:
- The benefit-in-kind on all types of company cars, including electric vehicles (EVs), is set to increase on 1 January 2026 unless the Minister extends the cost-of-living measure previously introduced or delays the implementation of the tapering for EVs.
- Pension auto-enrolment is set to present an additional cost to employers and employees. For employees aged 23-60 who are not currently in a workplace pension, they’ll be automatically enrolled in the scheme as of 1 January 2026. Employees will contribute 1.5% of gross salary, with a matched contribution by the employer, which is topped up by the State. The scheme is set to bring additional costs to employers (which are also set to increase over time), as well as for the State, with a view to shoring up the future pension funding landscape.
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