Introduction
It gives me great pleasure to join with the Minister, Deputy Chambers, and the Government in presenting budget 2027 to this House.
Today's budget is the second in this Government's term. No one budget can achieve all the things that a government wants but it can set us on a path, a trajectory, a way forward.
The path we are setting out here today is an optimistic one for Ireland. It is a path that brings us to a place in which work is rewarded, risk is repaid and investments in our future bear fruit for decades to come. It is a place in which the benefits of growth are widely shared, where everyone - regardless of their circumstances - can get ahead, improve their lot and provide for their families.
I want people at home to know that we have heard loud and clear the importance of a personal income tax package. People are working hard and are doing their best. They want Government to work with them, and we get that. It is so important that we have a strong economy but a strong economy can never be an end in itself. It is there to serve society. People need to feel the benefits of economic growth in their own daily lives and, indeed, in their pockets.
Uncertain times
As Members know, this budget is being delivered at a time of major global uncertainty. Three issues, in particular, informed my thinking over the past few months as we sat down to construct this budget. The first, and most obvious, is the volatility we continue to see in world energy markets. The conflict in Iran and the increase in energy prices that has brought is having a real impact on people's lives. That is why Government acted, with one of the largest support packages in the European Union, and today we will do more. The second issue we face is the significant geopolitical uncertainty we have experienced over recent years. As a small open economy, Ireland is extremely vulnerable to shifts in the terms and patterns of global trade. Third, we cannot and must not ignore what is happening in global bond markets. Some of the biggest, most advanced countries in the world are experiencing a rise in borrowing costs that will significantly increase the cost of financing their debt, impeding their ability to do other things. Ireland is not immune from these challenges, and we must be mindful of the global economic headwinds.
Today's budget reflects this context. It balances today's needs with tomorrow's musts. It is fair to people who are working now while not forgetting about those who will do so in the future as well as those who have already made their contribution and retired, and it recognises that the future of our economy depends on our ability to invest and to continue to grow.
Economic Resilience
A remarkable aspect of the turbulence of recent years has been the resilience of the Irish economy. Ireland has one of the youngest populations in the European Union. We have one of the fastest growing economies. We have rising incomes, falling debt and full employment. While the difficulties of interpreting some Irish economic data are well known, there are some statistics that show, undeniably, the progress that this country continues to make. There are now over 2.8 million people working in Ireland, the highest level since records began. We have had four and a half years of full employment, the longest stretch ever. Wages have kept up too, rising by an average of 4.5% per year over the past four years.
Looking ahead, my Department is forecasting that we will add a further 53,000 jobs next year. These jobs will be added because our economy will continue to grow.
Modified domestic demand, MDD, the best measurement of the domestic economy, is set to grow by 3% next year. Since the pandemic, domestic demand in Ireland will have grown by 20% by the end of next year. These forecasts have all been endorsed by the Irish Fiscal Advisory Council.
In normal circumstances this would be a solid record of growth. In the context of wars, trade disputes and energy crises, it is quite simply phenomenal. Put simply, it is not unreasonable to say that Ireland has been and is an island of economic and political stability in a world of increasing and growing volatility.
Public finances
That stability is reflected in the public finances.
Today my Department has updated its fiscal forecasts. This year we expect to run a surplus of €6.7 billion. In 2027, we will again deliver a surplus of €9.5 billion.
People ask why we run surpluses. We do it so that we do not spend tax revenues that cannot be relied upon in the future on day-to-day spending. We do it so that we build up financial buffers, which can help us when a period of challenge arises, as has been the case with the current energy crisis when we were able to use some funding from the surplus to help people. We use the same tax revenues to also invest for the future we know is coming - for our ageing population, for the pensions and for the healthcare people will need in later life.
Now is the time to put money aside so that our children are not financially ruined paying for our own old age. Now is also the time to fund the infrastructure our growing country needs to thrive. That is why we will invest over a quarter of a trillion euro in infrastructure over the next ten years. It is why we will continue to run budgetary surpluses for the remainder of this Government’s term in office. Today, I am informing this House that we are reinforcing this Government’s commitment to the Future Ireland Fund by investing an extra €1 billion into the fund next year. This will be in addition to the planned transfer of around €4.8 billion already due to be made.
We must plan for a future in which the public finances will not always look like they do today, and we must build more resilience in a more shock-prone world. Today’s budget is one of a series of budgets in which the Government intends to do just that; to make policy choices that back investment by private sector companies to deliver jobs; use fiscal and regulatory policy to support growth and to help hard working people and their families get ahead, not just get by.
Making hard work pay
These people are the backbone of our society. Whether they are in the public or private sector, getting up early or staying in work late, caring for their families and contributing to their communities, it is the tax revenue of hard-working people that pays to provide the services we need. Our tax system is one of the most progressive in the developed world. We should be proud of that fact. In our system, those who can pay more do so and the more you earn, the more you pay. That is the right kind of system to have. It ensures people on low wages do not pay too much. We should never lose sight of the fact a third of taxpayers pay no income tax at all.
It also helps to ensure Ireland remains a broadly equal country but we need to be careful that those in the middle are not forced to carry too much of the burden.
Income tax
It is those in the middle who can often feel the squeeze, earning too much to qualify for supports but too little not to notice the rising cost of living. In our view, there are too many people who feel like this. Too many people are working hard, earning good money on paper and feel like they are just about getting by. Through this and future budgets, we want to work with people to change this. That is why today we are announcing a personal income tax package of €1.3 billion. I am increasing the standard rate cut off point by €2,500 to €46,500, with proportionate increases for married couples and civil partners. I am increasing each of the main tax credits - the personal, employee and earned income credits - by €125, and I am increasing the home carer tax credit by €100. These changes will now mean someone earning €50,000 a year will pay over €700 less in income tax and USC next year. For a couple with two incomes earning €100,000 between them, it will mean €1,500 less in their tax bills. I am also increasing the entry threshold for the USC 3% band by €1,600, from €28,700 to €30,300. The increase takes account of the minimum wage changes which will be outlined in detail by my colleague, the Minister for Enterprise, Tourism and Employment.
I am also pleased to confirm that to support small and medium enterprises, SMEs, and to ease the PRSI impact on employers from an increase in the national minimum wage, the Minister for Social Protection will increase the employer PRSI threshold from €552 to €600 per week for 2027. This will represent a saving to businesses on employers PRSI of between €650 and €700 per employee below the new threshold, over the course of a year.
The programme for Government committed to changing the tax bands to prevent an increase in the real burden of income tax over time. That is the path we are on and we want to build on that in future budgets. We are doing so because work must always pay and those who want to work must have the opportunity.
There are more than 346,000 people with a disability in Ireland who are already in work. They are contributing to our economy, supporting their families and communities and making an enormous contribution to our country. However, there is a significant gap in participation. Behind it are people who want to work, people who want the opportunity to build careers and financial independence, and people whose talents Ireland cannot afford to leave on the sidelines. A more inclusive labour market is not just about fairness. It is about making sure everyone who can contribute has the opportunity to do so.
Over the course of the next year, we will work across Government to examine what further measures we can take to recognise the contribution of those who are already working while doing more to remove the barriers faced by those who want to enter or remain in employment.
Capital acquisition tax
Today, I am also making changes to the capital acquisition tax thresholds which apply to gifts and inheritances. These were last increased in 2024. I now intend to provide further increases to all thresholds. I am increasing the group A threshold from €400,000 to €420,000, the group B threshold from €40,000 to €44,000 and the group C threshold from €20,000 to €22,000.
Standard fund threshold
In relation to pensions taxation, I am revising the age-related valuation factors which apply to the standard fund threshold regime. These new valuation factors will come into effect on 1 January 2027, and details will be set out in the finance Bill.
Making money work hard
Investing for the future does not apply solely to the Government’s plans for infrastructure spending, nor solely to the Future Ireland Fund. Irish people have a strong culture of saving, yet participation in investments remains very low. For many, investing can be complex, inaccessible or reserved for those with significant wealth or significant expertise. We as Government want to change that. Earlier this year, we announced that we would develop a new Irish investment account. We want to make investing simpler, clearer and more accessible to everyday people. We want to create an environment where people can put their money to work to build up their own financial resilience. We have undertaken extensive work on the design of this account. We have engaged closely with consumer representatives and financial services providers. We have also examined successful approaches in other countries and engaged with the European Commission as it advances the Savings and Investments Union.
Deposit and savings accounts will, of course, continue to be the right choice for many people and for many purposes, as will Ireland State savings which will continue to offer a suite of savings and investment products, such as Government bonds, that are 100% guaranteed by the State.
Government’s role is not to tell people how to manage their money; it is to ensure people have clear choices, information they can trust, a system they understand and a tax system that is fair and works - a tax system that strikes a balance between encouraging small-scale investment while ensuring those with greater means continue to make a fair contribution.
To achieve this balance for our new savings account, I will be providing a tax-free threshold of €50,000; a flat tax of 1% on the value of the account above that threshold; and a maximum contribution limit of €12,000 per annum and no minimum contribution. For example, if an account were to be valued at €2,000 above the threshold - in other words, €52,000 - the tax payable for that year would only be €20. That represents an exceptionally good option for people in this country. The contribution limit of €12,000 in combination with the tax-free threshold means it is extremely unlikely that any tax will be due in the first few years following the opening of an account, even where the maximum contribution is made.
Crucially, there will be no requirement for people to engage with Revenue when it comes to the normal administration of the account. That responsibility will fall to the provider. These accounts will operate outside the scope of the taxes which currently apply to different investment products. There will be no capital gains tax, dividend withholding tax, investment undertaking tax nor life assurance exit tax. The deemed disposal rule will not apply to investments held within the account. Those choosing to invest will have a broad range of options including shares, bonds, exchange traded funds, ETFs, and other funds. They will have the choice of a variety of service providers, including banks, investment firms and insurers. This range of choice will foster competition and help to reduce fees.
The investment account will also sit alongside our national financial literacy strategy, helping people to develop the knowledge and confidence to make informed decisions about saving and investing. Changing our investment culture will not take place overnight, nor should it, but I truly believe this can be a moment we will look back on and say this was the day we democratised the long-term gains from investment and ensured more benefits were felt by far more of our people. The account will open on 1 July 2027 and will be legislated for in the finance Bill.
Financial services
Moving on to the existing taxation regime for retail investment, as I have said many times, the introduction of the investment account does not replace the need to review and reform the broader framework. This year, I will take action to simplify the legislation underpinning it, providing clarity regarding how tax on investments such as ETFs operates.
In addition, I am pleased to announce a reduction in the rates of tax that apply to investors in Irish and equivalent offshore funds, and Irish and foreign life assurance products, including investment undertaking tax and life assurance exit tax, from 38% to 35% from 1 January 2027.
We will now intensively continue the work on the wider regime, including the rate of taxation, deemed disposal and the administrative burden facing investors, and I intend to make further progress on removing barriers to investment.
Helping with the cost of living in the here and now
Fundamentally, the tax changes I am announcing today and the introduction of the investment account are based on the reality that individuals and families are best placed to manage their own budgets. Lowering the tax burden frees up people to make their own choices, to do what is best for them in their own circumstances. That is not to say that Government cannot help. Of course we can and we are.
Sometimes that comes in the form of a temporary response to a moment of challenge, but the Government is also putting in place structural changes to help people in their everyday lives, like the income tax measures I have outlined. The Minister, Deputy Chambers, will shortly provide details on a range of expenditure measures. There are also tax policy measures beyond those that relate to personal income tax that can really make a difference to people’s lives, reduce their cost of living and help raise their living standards.
Energy
The most acute area of pressure at the moment is energy. We have experienced two energy price shocks over the past five years. The increase in oil prices since February has had a damaging knock-on implication for every household and business in Ireland. That is why Government acted in successive ways to lower the price of petrol, diesel and the cost of bringing goods to shops up and down the length and breadth of this country. The measures have had a positive impact. Inflation is around 0.6% lower than it would have been had we not acted. Our approach during this crisis has always been to remain flexible. When dealing with a situation that is changing almost daily, Government intervention needs to stand ready to extend supports as necessary.
Carbon tax
The carbon tax is a fundamental response to the energy transition. The tax was due to raise around €1.3 billion this year and assist with measures such as residential retrofitting, fuel poverty interventions, and agri-environmental schemes. We are committed to using this tool to speed up the energy transition. However, the extraordinary circumstances we find ourselves in do call for extraordinary measures, so we must do more. We have to be honest. Even if the conflict in the Middle East was resolved today, we would still be dealing with the repercussions for oil prices and the knock-on impacts on prices across the board.
Home Heating Costs
In particular, as we come into winter, the increase in the price of home heating oil and natural gas represents a heavy burden for many families who have no easy alternatives. While no Government can fully absorb the impact of the Middle East conflict, we must act. Therefore, I want to be clear that carbon tax on home heating oil and gas is being reduced and will not increase again in the lifetime of this Government. I want to be clear that there will be no increase in any form of tax at the pump or in your home during this winter period. We are reducing the rate of carbon tax on both kerosene and natural gas. Rates on these products were scheduled to increase twice between now and May 2027, from €63.50 per tonne of CO2 today to €78.50 per tonne by 1 May 2027. Instead, they will both be reduced to where they were in 2023 to €48.50 per tonne. Importantly, to give certainty to households and businesses and to embed this real reduction in the cost of living and in doing business, we are announcing that these rates will be maintained for the lifetime of the Government. The decision not to proceed with future increases on these products will ultimately result in the carbon tax rate being less than half of what was set out in the original trajectory.
Extension of Excise measures
Today I am also extending the temporary reduced fuel excise rates that are currently in place until November. The reductions will now remain fully in place until 28 February 2027. From that point we will begin a gradual and responsible restoration in four phases, with full restoration not occurring until 30 June 2027. This further alleviation is in addition to other measures such as the extension of the reduced National Oil Reserves Agency, NORA, levy until 31 December 2026; and the extension of the enhanced diesel rebate scheme until the end of the year. The extension of these measures will continue to lower inflation, reduce the cost of doing business and keep more money in people’s pockets.
In line with the programme for Government commitment, my Department is also engaging with the European Commission to establish an even more favourable tax treatment for hydrotreated vegetable oil, HVO, to assist people transitioning to a greener alternative.
Energy transition
The changes I am introducing today do not in any way signal a weakening of our resolve to decarbonise the economy; it is quite the opposite. The two recent energy shocks have offered further proof, if any were needed, that we need to wean ourselves off fossil fuels. Our reliance on dirty, imported fossil fuels is damaging to our economy, raises the cost of living and puts the welfare of our society at the mercy of events over which we often have no control. This simply cannot continue. The energy transition is most often seen from the perspective of climate change. Recent summers and winters, both here in Ireland and across Europe, have shown how urgent this is.
It is not just about that. The energy transition is fundamental to our economic well-being, to our national security; to our competitiveness in an increasingly competitive world and to our overall standard of living. A strategic aim of this Government is to facilitate and speed up that transition but it must be done in a way that is fair to people who cannot shoulder all the costs. That is why, last year, the Government injected €1.5 billion into the ESB to help finance the investment needed to increase capacity and integrate renewable energy. A further €2 billion will be invested by EirGrid in the coming years to boost the resilience of the grid as we switch to renewables. The national energy affordability task force will publish its latest report shortly. The task force was charged with examining structural reforms needed to lower costs for households and businesses. As Members know, people are already responding and making changes where they can in their own lives. Today we are announcing further measures to assist with the transition.
Vehicle Registration Tax
Over recent years we have seen a fundamental shift in people’s preferences when purchasing a new car. In the first eight months of this year, more than one in every four new private cars registered in Ireland was electric, which is higher than the European Union average. In August, the number of new electric cars was up 57% on the same period last year. Much of that change is down to supportive Government policy and today I am extending the VRT relief for electric vehicles for another two years until 31 December 2028. To further incentivise purchases of low emission cars, I am also increasing VRT rates by 1% on more pollutant cars in bands 3 to 20.
Cycle to Work
We will initiate a review of the cycle to work scheme in 2027 to determine ways to boost take-up among all workers. The Minister for Transport will initiate a comprehensive review of the taxsaver scheme for commuters. Working patterns have changed and the scheme needs to reflect that. If a satisfactory new model can be developed, the same tax treatment as under the current scheme will apply.
Sustainable Aviation Fuel
We need to look at all opportunities to decarbonise. Sustainable aviation fuel, SAF, is expected to play a central role in decarbonisation of the aviation sector in the coming years, and there is potential for Ireland to become a hub for SAF production. The Government intends to commence a public consultation to identify barriers to SAF, including renewable energy and bio-feedstock production inputs, to investigate the potential role for support mechanisms in this area.
Microgeneration
I am increasing the income tax disregard for microgeneration income received by households that sell electricity back to the grid by €200 from €400 to €600.
Structural changes to help with planning for the future
I will now detail some further structural changes the Government is making in this budget to provide more permanent assistance to households and businesses with managing everyday costs and planning for the future.
Childcare
Investment in childcare and early years education is not only an investment in our children’s future but an investment in the economy's resilience. Despite real progress over recent years the cost of childcare is still too high for many families. The Minister, Deputy Chambers, will shortly outline measures the Government intends to take in that space. Alongside that, I am enhancing the childcare services relief to increase the tax exemption by €5,000 to €20,000 to endeavour to increase supply and to remove the limit on the number of children that can be minded under the relief. This will provide greater flexibility to childminders to support the needs of parents and families.
Education
The cost of education has a big impact on many families, and as we continue to reduce the student contribution fee, I am aligning the disregard for the income tax relief for third level fees with the student contribution fee, which will provide a further saving to parents.
Housing
We have acknowledged that this budget is coming at a time the cost of living is looming large for our people. When it comes to the everyday cost of living and the longer-term, structural changes we want to make, high rents and high house prices are a key driver of high costs. That is why housing has been this Government’s number one priority. This year we will spend over €9 billion building new homes. In total, funding for housing under this Government and its predecessor has nearly quadrupled. We all continue to work to do more.
Rent -a-Room
The only long-term solution to the issues in the housing market is increased supply. One of our successful incentives to add supply is the rent-a-room scheme and we are building on that in this budget by increasing the tax-free threshold a homeowner can earn from €14,000 to €16,000. This is aimed at incentivising more people to rent out rooms.
Earlier this year, the Minister for Housing, Local Government and Heritage also introduced revised planning rules to make it easier for homeowners to add detached accommodation on the grounds of their homes. I am now also extending the rent-a-room income tax relief to include newly installed detached auxiliary dwellings between 32 sq. m and 45 sq. m. The change will apply retrospectively from 27 July last when the new planning rules came into force.
Rent Credit
We are fully aware that as we ramp up public and private investment and supply increases, prices and rents remain high. High rents are a key driver of the cost-of-living pressures and we want to help address that. The rent tax credit is now helping around 400,000 people with rent every year. Making good on the Government’s commitment, this year we are increasing further the value of the credit by €150, bringing it up to €1,150 for single claimants and €2,300 for couples.
Help to Buy
We also want to provide further support to first-time buyers, so we are building on the successful help to buy scheme by increase the maximum refund a first-time buyer can claim by €5,000, to €35,000, with immediate effect. This ensures taxpayers can get more of their own money back while they are buying their first property.
Residential Zoned Land Tax
The residential zoned land tax was introduced in budget 2022 and came into effect on 1 February 2025. This tax is designed to increase the national stock of zoned and infrastructurally serviced land, and to deliver housing across the country. It is achieving these objectives. I am now providing another opportunity for landowners to avail of an exemption in 2027 if they seek to have their land rezoned to reflect the genuine economic activity being carried out and that exemption will be considered by local authorities.
Local Authority Borrowing
Local authorities are the key stakeholders in the delivery of social and affordable housing. They are also going to be key in delivering on other Government and national priorities such as infrastructure and urban regeneration. Citizens often see government in action at a local level, and we want to give more autonomy to local authorities to do what they are mandated to do. Therefore, from next year, I will permit local authorities to borrow more, and they will be allowed to spend some of their own resources, or borrow, an additional €200 million per annum. The local authorities that have the means will now be able to invest more in capital projects that are consistent with Government priorities, making a positive impact in many communities.
Derelict Property Tax
Local Authorities also have a key role with regard to dereliction, which is a scourge in many of our towns and cities, and quite simply an unacceptable spectacle in the depths of a housing crisis. Last year, the Government announced that a new derelict property tax would be introduced, and I have been working with the Minister for housing on this. Legislation on this will now be included in this year’s Finance Bill. This is a housing policy measure with a regeneration goal, and it will require local authorities and Revenue to work together as implementation partners. The tax will encourage property owners to redevelop their properties or sell them to someone who will. Local authorities will continue to have a central role with regard to the identification and registration of derelict properties. Work will commence on this in January, and preliminary registers of dereliction will be published on next September. The rate of tax will be 7% and Revenue will use its full range of powers to ensure high rates of compliance. Together with the changes I am making to allow local authorities to spend more, this tax will help revive many of our villages, towns and cities.
Culture and heritage
Local communities also depend on a vibrant cultural sector, and we want to continue to support them. Therefore, I have asked my officials, in conjunction with the Department of Culture, Communications and Sport, to commence a review of the tax treatment of theatre production costs and supports for the wider night-time economy. In a further measure related to culture and heritage, I am also increasing the annual threshold for tax relief on the donation of heritage items to Irish national collections from €8 million to €12 million.
Charities
Charities are also making a vital contribution for communities right across this country. From Bray to Bundoran, Donegal to Dungarvan and Carlow to Cavan, charities are doing so much in each of our communities, and we want to help them under the VAT compensation scheme. Under this scheme, they are entitled to claim a refund on a proportion of their VAT costs based on their level of non-public funding. In this budget, I am increasing the total annual capped fund from €10 million to €15 million.
Rural pubs
Rural pubs are at the heart of many local communities. They often provide a place where families, friends and neighbours can come together. Supporting the local pub helps keep an important part of rural life alive, while also supporting local jobs and the wider economy. They are also key small and medium businesses, hiring thousands of people cumulatively across this country, including many young people.
Today, I am announcing €15 million to keep our pub doors open. In the time ahead, we will work to develop a scheme that will help assist our rural pubs and will engage with that sector.
Supporting business
At this time of the year, the focus is often on how we distribute the fruits of economic growth, and all too often there is not enough consideration given to how that growth was actually achieved in the first place. It is businesses and it is enterprises that generates those taxes that we then use to pay for public services. It is enterprise that drives productivity, growth, incomes and increases in living standards. It is the small business owner, the risk taker and the entrepreneurs that are the bedrock of the Irish economy. To encourage such entrepreneurship, to reward risk, and facilitate the scaling of home-grown Irish firms, we are reducing the standard rate of capital gains tax from 33% to 31%. I am confident that doing so will help business owners make the right decisions for them and the right decisions for their businesses, will release capital for reinvestment, and will help improve competitiveness in the Irish economy.
Reducing the cost of business
In line with a commitment given in the programme for Government, the cost of business advisory forum recently made a number of recommendations to the Government. The report recommends changes to the enhanced reporting requirements, which were introduced in 2024 and oblige employers to make certain reports to Revenue. I have listened to stakeholder feedback on this and I am announcing that we will provide for a change in reporting in the Finance Bill. From January, employers will be able to choose to continue to operate in real time in terms of those reports or instead make monthly returns. Further details will be included in budget publications.
Ireland’s competitive and stable tax regime has long been an important part of our enterprise offering, working alongside a comprehensive system of grants and supports, but there is no room for complacency. We want to ensure we can make it easier for businesses to invest, to innovate and to grow, safeguarding and enhancing the competitiveness of our enterprise support regime. Therefore, we intend to undertake an holistic assessment of all the various grant schemes, enterprise tax incentives and business development programmes currently on offer. We want to enhance and improve our overall approach to supporting enterprise and encouraging the mobilisation of private capital investment, taking into account the European state aid framework that we operate in.
Ireland Strategic Investment Fund
To further support the growth of Irish companies, I am very pleased to announce today that the Ireland Strategic Investment Fund, ISIF, will launch a €1 billion investment programme aimed at creating the next generation of large Irish companies. This is ISIF's biggest ever investment in scaling and it will be a three-year programme running up to 2030. We want to create an environment in which Irish businesses remain rooted in Ireland but can scale up and grow internationally. In co-ordination with Enterprise Ireland, ISIF will invest through a range of channels to ensure that ambitious Irish businesses have enough capital to do just that.
Small business/start-up measures
I also want to encourage private investors to invest in Irish businesses and to take a chance on an Irish start-up. As trade patterns shift, it is more important than ever that we create a dynamic and innovative start-up culture in Ireland and that we help them attract funding and scale up. So today, and subject to the adoption of the new EU state aid general block exemption regulation, I am announcing the extension of the employment investment incentive; the start-up capital incentive; the start-up relief for entrepreneurs; and the relief for investment in innovative enterprises, also known as the angel investor relief. I am also extending the corporation tax small company start-up relief.
Corporate tax
The Government is committed to making sure that our tax code remains competitive, supports investment and is aligned with international best practice. Therefore, I am making a number of amendments to our corporation tax regime.
R&D
The R&D tax credit has been a cornerstone of our corporation tax policy since its introduction in 2004, providing consistent support for cutting-edge scientific and technological research for over two decades. Building on the enhancements of recent years, and in line with the programme of work set out in the R&D compass, I am making several further improvements to this important regime, including: increasing the existing limits on scope for subcontracting to third level institutions and third parties, from 15% to 20%, and from €100,000 to €200,000; increasing the first-year payment threshold from €87,500 to €105,000 to provide cash flow support to smaller R&D projects; introducing a new enhancement in respect of qualifying R&D wage costs; providing that if a clinical trial is regulated, this fact may be used to satisfy the science test to reduce administrative burden and recognise R&D work undertaken by Irish companies as part of global trials; and providing for a simplification measure to improve recognition of the R&D tax credit for preliminary tax purposes.
Knowledge Development Box
Recognising the importance of creating intellectual property in Ireland, I am also extending the knowledge development box, KDB, regime by a further five years. There have been significant changes in the international tax environment since the knowledge development box was first introduced. Accordingly, I am also providing for a limited option for existing claimant companies to opt out of the KDB regime in respect of all qualifying assets.
Ireland’s interest regime
As part of the ongoing review of Ireland’s taxation regime for interest, I will also be advancing several targeted amendments in the upcoming Finance Bill to simplify the existing provisions governing interest relief on borrowings taken out for certain lending and investment activities.
Changes to Preliminary Corporation Tax
I am also providing for amendments to preliminary corporation tax rules, to reduce uncertainty, improve flexibility and reduce the administrative burden for companies. The amendments include increasing the threshold up to which a company is considered to be a small company for the purposes of preliminary tax payments.
Pillar Two
In January, the OECD inclusive framework agreed the pillar two side-by-side package. It will provide certainty to the business community and avoid further fragmentation of the international tax architecture. I will be publishing legislation to implement that package also in the finance Bill.
Withholding Tax
Following announcement in last year’s budget speech, a joint Department of Finance and Revenue public consultation on the proposed reform and expansion of withholding tax was conducted. Today, I am announcing that I will reform professional services withholding tax by introducing "personalised deduction rates" in place of flat withholding at 20%. This will be subject to commencement order to facilitate engagement with stakeholders.
Agriculture
When we talk about supporting businesses, we can never forget our most indigenous industry which is critical to Ireland's national economy - agriculture. Family farms are the glue that bonds rural communities together. They represent a system of food production that is safe, reliable and sustainable. Last year, farm incomes rose by 49% with particularly strong growth in the beef sector. Recent Governments have never been slow to recognise the importance of this sector to Irish society and this year will be no different. The Commission on Generational Renewal in Farming was established to help address the urgent challenge of Ireland’s ageing farming population. It published its report with a number of recommendations last year. I am happy to announce that in response to one of those recommendations, regarding succession farm partnerships, I am removing the three-year holding period for applications made from 1 January 2027 onwards. I am also increasing the associated tax credit that is available for five years, from €5,000 to €10,000, for all succession farm partnerships registered from 1 January 2027.
Unfortunately, and sadly, there are still too many accidents and injuries on family farms. I want to make sure that farmers are not discouraged from making their farms safer by the cost of safety equipment. Therefore, I am extending the accelerated wear and tear allowance for farm safety equipment by three years to 31 December 2029. I am also adding 12 further items to the already extensive range of equipment covered by it. Today, I am also reducing the rate of VAT on respiratory vaccines for livestock from 23% to 9%. Finally, the farmers flat rate addition is being increased from 4.5% to 4.8% in 2027. This will provide for full compensation for flat-rate farmers for their VAT input costs.
Fisheries
It is, of course, important to support our fishers. I want to acknowledge the interim report of the independent chair of the Food Vision 2030 seafood group, which highlights the importance of the seafood sector to sustaining businesses in rural coastal communities. The report recommends a number of measures in relation to current taxation, succession and the acquisition and disposal of fishing and aquaculture business. I and my officials will work with the Minister for Agriculture, Food and the Marine, and the Minister of State with responsibility for fisheries, and his officials in progressing proposals for consideration.
Public sector delivery
Those of us who work as public representatives, and those of us who work in the public service more broadly, have a responsibility to continue to ensure public services are delivered in the most cost-effective and efficient way possible. In my own area of responsibility, I have seen how Revenue has utilised new technologies to deliver better services at lower cost. This sort of innovation is not only what our citizens expect but what they deserve and demand. Increased efficiency, improved productivity, better value for money - these things free us up to do things that public servants would want to do, to work on the things they joined the public service to work on, to drive innovation, improve living standards and compete in a more competitive world.
For example, in the healthcare sector, the Department of Enterprise, Tourism and Employment, working closely with the Department of Health, will soon complete a new national life sciences strategy. At the heart of this must be a more strategic framework for medicines and health technology that supports a more predictable, sustainable and forward-looking approach to how Ireland plans for, invests in, and delivers access to medicines and health technologies. I look forward to working with ministerial colleagues across Government to progress this important agenda.
Revenue raisers
I will now outline the further revenue-raising measures in this budget alongside the VRT changes I have already set out.
Tobacco
Smoking continues to kill so many Irish people every year. It is important that we continue to discourage and dissuade people, particularly younger people from smoking. I am, therefore, increasing the excise duty on a pack of 20 cigarettes by €1, with a pro rata increase on other tobacco products. I am also increasing the duty on e-liquid products by 20 cent per millilitre.
Bank Levy
Although our recovery has been extraordinary, the scars of the financial crisis remain, particularly in the housing and construction sectors. It is, therefore, appropriate that the banking sector continues to play its part. I am extending the bank levy for a further year, with a target yield of €200 million.
Future of the economy
I began this address by saying that the path we want to set out today is an optimistic one for Ireland. It is an optimism that is founded on belief in this country to continue to make the extraordinary progress we have made over recent decades. The choices we made to get where we are today proved the right ones. Ireland can meet the challenges we face, geopolitical shifts, competitive pressures, demographic changes and many others but we can only meet them if we continue to make the right and responsible choices. We know we need to diversify our industrial base and scale Irish firms, and we will. We know we need to invest the increases we have seen in corporation tax, rather than rely upon them, and we are. We know that the only conceivable future is one powered by clean, Irish energy. The path we have set out over the past year, including through the medium-term plan and this budget, recognises these facts. In this and future budgets, we will remain firmly on that path. We will continue to invest heavily in our physical infrastructure with transformative and once-in-a-generation projects. We will continue to target budget surpluses to guard against the downturns that may come, and to make sure we never mortgage our children's future. We will continue to capitalise our sovereign wealth fund, the Future Ireland Fund, so that we plan to meet the demographic change, not that might come but that we know is coming.
Conclusion
I have acknowledged that we are presenting budget 2027 at a time of uncertainty. There is uncertainty in energy markets, in global bond markets, and a broad uncertainty in geopolitical relations that we have not seen in a generation. As a Government, we are responding to those uncertainties by building up our national resilience; by anchoring our tax policy so that we can give people some certainty on the direction of travel; by giving people more of their own money, so they can make their own choices; by offering them a chance to invest in their own future; by freeing up businesses to invest and grow; by using the resources of the State to improve and expand critical infrastructure; and by intervening in a measured way to ensure that a short-term energy crisis does not impede our longer-term goals. We do not build resilience by being reckless. We do it by setting out a path that is ambitious, yes, but also achievable. It is a path centred around people, that rewards hard work, risk-taking and innovation and that recognises that the State and the Government cannot do it all but must do what it can to help people in the here and now, and to plan for the future. Through this budget and the remaining years of this Government, we intend to do just that. That is why I commend budget 2027 to the Dáil.
