Government Considers Raising Income Tax Threshold as Budget 2027 Planning Begins

Minister for Finance Simon Harris has said the Government is examining the possibility of increasing the income level at which workers enter the higher rate of tax, as preparations begin for Budget 2027.

Speaking at the National Economic Dialogue in Dublin Castle, which brought together trade unions, employers and civil society organisations, Harris said adjusting the tax threshold could help ensure that wage increases translate more directly into higher take-home pay for workers.

The current threshold for the 40% income tax rate was left unchanged at €44,000 in Budget 2026. With wages rising across much of the economy, more workers have effectively been pulled into the higher tax bracket. The Government now sees indexation of tax bands as one of the key options under consideration for the next budget cycle.

Harris also indicated that the Coalition is exploring measures to encourage household saving and investment, including a potential tax-efficient savings scheme aligned with wider European efforts to boost retail investment in equities.

At the same event, Taoiseach Micheál Martin outlined broader budget priorities, including reducing childcare costs, supporting disability services, tackling child poverty and expanding infrastructure investment. He said improving childcare affordability would also require increasing capacity and addressing staffing and pay conditions within the sector.

Separately, the Government is preparing to open discussions with trade unions on a new public sector pay agreement, with current arrangements nearing expiry. Minister for Public Expenditure and Reform Jack Chambers described the upcoming talks as “challenging,” warning that fiscal constraints would limit the scale of new commitments.

Chambers said the Government aimed to support households facing cost-of-living pressures but cautioned against short-term spending increases that could prove unsustainable. He added that the focus of Budget 2027 would be to reward work, strengthen housing delivery and accelerate infrastructure development.

Trade unions used the National Economic Dialogue to press for stronger action on pay and taxation. The Irish Congress of Trade Unions called for indexation of tax bands in line with inflation, arguing that failure to adjust thresholds was increasing the tax burden on middle-income earners. It also urged targeted energy supports and reductions in childcare and transport costs.

ICTU General Secretary Owen Reidy warned that industrial action could not be ruled out if workers’ expectations were not met, criticising what he described as an uneven tax system and calling for greater fairness in inheritance taxation.

Employers’ group Ibec urged the Government to prepare for long-term economic shifts driven by artificial intelligence and demographic change, calling for increased investment in skills and training.

The Department of Finance is expected to set out updated budget parameters in the summer economic statement ahead of October’s Budget 2027 announcement.