Budget 2027: Tax Relief Expected Amid Cost-of-Living Crisis

With over one million taxpayers facing the higher 40 percent rate and a persistent cost-of-living crisis, Budget 2027 is expected to deliver income tax relief. This follows a year where workers received no benefit from income tax cuts, and PRSI is set to increase by 0.15 percentage points from October 1st.

Minister for Finance Simon Harris emphasized that economic progress must be reflected in people's pay packets, indicating further increases in the income tax threshold. This aligns with international trends, such as Germany's consideration of raising its top tax rate threshold from €70,000. Potential changes in Ireland include widening tax bands, increasing tax credits, and addressing the high marginal tax rate of 52.2 percent (including USC and PRSI).

Widening the standard rate band is a likely measure. An increase of €1,000 to €45,400 would cost €265 million annually, while a €1,500 increase would cost almost €400 million, saving an eligible couple €600 per year. Cutting tax rates is more expensive; reducing the 20 percent rate to 19 percent would cost over €1 billion, and the 40 percent rate to 39 percent would cost €567 million.

Other proposals include reducing the Universal Social Charge (USC) or widening its bands. Exempting income under €14,000 from USC would cost €6 million. Increasing the threshold for the 3 percent USC rate by €1,000 would cost €48 million. Increasing the single person's tax credit by €100 would cost €127 million. Additionally, there are calls to reintroduce PRSI contribution caps at €75,000 for employees and €100,000 for employers, and to abolish the 3 percent self-employment surcharge on income over €100,000, which is deemed inequitable.