Budget 2026: A nudge toward innovation — but ordinary taxpayers get little relief

By Michael Queally

The 2026 Budget is a cautious budget. There are unmistakable signals: a push toward research and entrepreneurship. On the other, you see restraint — especially where ordinary taxpayers are concerned. Against the backdrop of global uncertainty (not least from US tariff policy), the government is clearly gambling that innovation and enterprise are the engines that can carry Ireland forward.

Here’s how I see it — section by section — and where the risks lie.

1. Global Headwinds & the Uncertain Trade Climate

The world economy is far from stable. Escalating US tariffs, trade disputes, and supply chain disruptions are distorting investment flows and heightening volatility. For a small open economy like Ireland, dependent on trade and foreign investment, this is a serious headwind.

Given that context, it makes sense to place emphasis on internal engines of growth: innovation, domestic enterprise, and a more resilient homegrown economy. These need the right incentives, and they need stability.

2. Incentivising Innovation: R&D and Entrepreneur Relief

Perhaps the most forward‑looking elements of this Budget are the enhancements in R&D tax credit and Entrepreneur Relief (Capital Gains Relief).

• Raising the R&D rate (from 30% → 35%) and expanding the first‑year refund threshold (from €75,000 → €87,500) eases cash flow burdens, particularly for smaller firms and start‑ups that invest early.

  
  

• Increasing the lifetime limit of Revised Entrepreneur Relief from €1 million to €1.5 million signals that the government wants to reward risk, reinvestment, exits, and scaling up of Irish enterprise.

They are targeted tools, designed to nudge businesses toward innovation, higher value activity, reinvestment, and local growth. Over time, if effective, the payoff is more sustainable than one‑off tax cuts.

Of course, the difficulties with these programmes, particularly the R&D Tax Credit will lie in the implementation.  There needs to be clarity on how this is going to work in practice and the process for getting these credits needs to be attainable for SME's.  It is of little use to have a tax credit where most of the benefit has to be spent on consulting reports to get them over the line.

3. Business Costs Are Increasing — and They Must Be Passed On

The Budget has a suite of new costs for businesses:

• The PRSI increase (0.1% for employer and employee) bites into labour cost.

  
  

• Auto‑enrolment pension contributions place new obligations on employers (especially SMEs) to contribute to staff pensions.

  
  

• The minimum wage increase to €14.15/hr, while laudable from a fairness standpoint, adds further pressure to wage bills.

All of these cumulatively push up the cost base for many businesses. In virtually every case, to maintain margins, these costs will have to be passed on — whether through higher prices, reduced margins, or lower investment elsewhere.

In sectors operating under tight margins (hospitality, retail, care services) the pain could be acute.

We should watch for ripple effects: inflationary pressures, wage relativity disputes (staff in roles just above minimum wage demanding comparable percentage increases), margin compression for small operators, and more challenges for micro‑businesses.

4. Ordinary Taxpayers: Modest Gains, Modest Change

For most ordinary taxpayers (excluding those with significant business interests), the picture is underwhelming:

• You won’t see income tax reliefs or major changes to tax bands.

  
  

• Your USC band may shift slightly (2% band expansion), but it’s a modest correction.

  
  

• The bigger change is auto‑enrolment: those without a workplace pension will now (if eligible) be enrolled into the new pension scheme — but that’s more structural than relief.

  
  

I think it is fair to say that middle earners didn't get very much from this budget.

5. Property & Development Incentives: A Light Touch, But Useful

Budget 2026 doesn’t ignore property:

• The cut in VAT on completed apartments to 9% is a welcome move to stimulate construction, densification, and apartment supply.

  
  

• Property developer incentives (enhanced deductions, cost rental tax treatments) aim to make development more financially viable.

  
  

These are smart, targeted moves. They don’t amount to full reform of planning, land cost challenges or infrastructure deficits — but they ease certain financial hurdles. In areas with land or site constraints, they may make the difference in whether a developer moves ahead.

6. VAT Cuts: Relief in Specific Sectors

Reducing VAT on food, catering and hairdressing services (from 13.5% → 9%) is a practical, tangible concession. It is effective from July 2026 and will go some of the way in these sectors to help with the increased costs.

7. The Strategy: Shift from Consumption to Creation

Taken together, the Budget suggests a clear strategic vision: shift emphasis from consumption subsidies and broad tax cuts toward creation, innovation, and scalable growth. The bet is that a stronger, more diversified enterprise base will protect Ireland better against external shocks — especially in a time of global tariff flux. Policymakers should now focus on simplifying access to R&D supports, ensuring timely guidance and funding flows, while businesses should prepare to adapt pricing and investment strategies to maintain competitiveness., more diversified enterprise base will protect Ireland better against external shocks — especially in a time of global tariff flux.

If the State wants to steer Ireland toward homegrown, high‑value growth, this Budget is a modest but meaningful start — now the work begins.