Taxation - Choices for Budget 2027

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Budget

Budget 2027 offers an opportunity for the Government to reform some aspects of the current taxation system in the interests of enhancing fairness and sustainability. Below we outline a series of reforms for Budget 2027.

Avoiding regressive tax measures

Recent reports have highlighted Ireland’s vulnerability to geopolitical uncertainty, changes to international corporate tax rules, and demographic shifts that will place increasing pressure on public finances in the years ahead. Given these challenges alongside Ireland’s substantial infrastructure and public service needs, reductions in income taxes, indirect taxes, excise duties and levies represent poorly targeted measures and should be avoided. One such example is the reduced VAT rate applied to catering and hairdressing services. Reversing this alone would raise an additional €680m in a full year. 

Carbon Tax and fairness

The 2020 Finance Act set out annual carbon tax increases to reach €100 per tonne by 2030. While the scheduled increase was paused earlier this year, this should be implemented without further delay. We believe that Budget 2027 should continue to abide by these commitments and increase the carbon tax by €7.50 per tonne as planned. It should also commit to using the revenue raised to fund a series of accompanying targeted measures to protect those most affected by it, in particular low-income households and rural dwellers. This would generate an additional €155m in a full-year to re-invest in those accompanying targeted measures. 

Increasing PRSI to strengthen the Social Insurance System

Strengthening social insurance is essential to making Ireland fairer, more resilient, and better prepared for the future. At present, Ireland’s PRSI rates remain low by EU standards. For most employers the rate in Ireland is 11.25 per cent (increasing to 11.4 percent in October 2026) compared to an EU average of 21 per cent. While we welcome the increase of 0.1 percentage points in each of the last two budgets, this still does not adequately address the anticipated future shortfalls, especially with an ageing population. Budget 2027 should commence a process of increasing all PRSI rates by 0.5pps a year for the next five years (reaching 6.85 per cent and 13.9 per cent  by late 2031). This will raise almost €1 bn in 2027. To facilitate businesses, the initial increase should be delayed until April 2027. 

Taxing Empty Houses / Underutilised Land

We welcome the recent measures aimed at reducing vacancy and addressing inefficiencies arising from underutilised land and properties. Given the ongoing housing shortage, new construction alone will not be sufficient; existing resources must also be utilised more effectively. Thus, we propose that Budget 2027 should reduce the occupancy period under the Vacant Homes Tax to six months and increase the rate to ten times the annual Local Property Tax. Income from this measure would yield €2.9m. Also, to strengthen the  impact of Residential Zoned Land Tax, we propose increasing the rate to 5 per cent of the land’s annual value, generating an additional €37.8m. We also encourage the speedy implementation of the new Derelict Property Tax and encourage Government to retain the rate to at least 7 per cent of the commercial value of the site.

Limit the ability to carry losses forward

Social Justice Ireland believes that in Budget 2027, Government should reform the tax laws so that limits are placed on the ability of individuals and corporations to carry past losses forward and offset these against current profits/income. We suggest introducing a rolling limit of 5 years on these losses commencing from midnight on Budget day. Losses prior to this period would no longer be available to offset against profits or capital gains. While this initiative would bring greater fairness to the overall taxation system, we note it would have a disproportionate effect on banking institutions who carry significant, self-inflicted, losses from the economic crisis more than a decade ago. Consequently, we suggest that Budget 2027 would also extend and amend the current banking levy. Together this proposal would yield an additional €100m in 2027.

Reform the R&D tax credit

A tax break for companies engaged in research and development was introduced in 1997 and has been revised and reformed on a number of occasions including last year. A curious component of the current structure is that firms may claim a tax refund on unused R&D credits - i.e. where they have not paid sufficient tax to cover the refund amount. The use of this scheme has allowed a number of profitable firms to record zero or negative (or ‘refunded’) tax-paid amounts. This measure should be removed from the structure of this tax break in Budget 2027. It would yield €472m in a full-year.

Abolish the Special Assignee Relief Programme 

The SARP was introduced in 2014 to provide a tax reduction to high earning individuals who locate to Ireland for work purposes (generally in MNCs in IT and the financial sector). Recipients must earn between €75,000 and €1m. Qualifying employees with income above €75,000 receive a reduction in their income tax liability. This subsidy was intended to boost the attractiveness of Ireland for foreign investment; however there is no evidence to suggest the scheme has achieved this or that it has induced any recent investment and relocations that would not have otherwise occurred. The SARP should be abolished in order to make the tax system fairer. This would generate €56.3m in 2027.

Other Tax Reform Measures

We also propose the following taxation measures aimed at broadening the tax-base, increasing revenue, and creating a fairer system:

  • introduce Refundable Tax Credits (for the two main income tax credits) at a cost of €210m;
  • increase by 2% the minimum effective tax rate paid by people earning €400,000+ (+€100m);
  • increase the PAYE and Earned Income tax credits by €5 per week (-€712m); 
  • standard rate all pension-related tax reliefs (+€712m); 
  • reduce earnings cap for private pensions contributions to move towards funding a Universal Pension (+€52m);
  • standard rate discretionary (non-pension) tax expenditures costing €5m+ (+€55m);
  • increase Capital Gains Tax from 33% to 35% (+€175m); 
  • increase Capital Acquisitions Tax from 33% to 36% (+€85m);
  • increase stamp duty on non-residential property from 7.5% to 8% (+€36m); and on residential property transfers: over €1m from 2% to 3% (+€6m) and over €1.5m from 6%to 7% (+€5m);
  • restore the Non Principal Private Residence (NPPR) charge on second homes at a rate of €200 a year (+€106m);
  • increase in-shop/online betting duty to 3% (+€55m);
  • introduce a financial transactions tax (FTT) (+€350m);
  • compliance: allocate €45m to Revenue.