Analysis: The use of any budget measures to relieve the cost of living crisis is limited by fiscal constraints and economic uncertainty
With Budget 2026 approaching, expectations are high that the Government will act decisively on the cost of living crisis, but fiscal constraints and economic uncertainty limit its room for manoeuvre. Advisory bodies have already warned against repeating the mistakes of the Celtic Tiger era, when booming corporate tax receipts and the construction sector were allowed to overinflate public finances.
Added to this are international risks, not least the threat of tariffs by Donald Trump, which cast a shadow over Ireland's export-led economy. These pressures suggest that this will be a conservative budget, rather than a pre-election giveaway. The Government is expected to have just €1.5 billion available for tax cuts, meaning choices will be tight.
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From RTÉ Radio 1's Today with Claire Byrne, can we expect a stingy budget or a generous one from the money ministers?
Groceries
Beginning with the elephant in the room, the price of groceries has become one of the sharpest pain points for households, but it is also the area where the Government has the fewest tools. The Competition and Consumer Protection Commission recently found no evidence of anti-competitive behaviour among Ireland’s supermarkets. That rules out price-fixing as a cause of rising costs and leaves the Government without a clear lever to pull.
Unlike energy or childcare, there are no subsidy schemes or tax adjustments that can bring down food prices directly. Global supply chains, input costs, and retailer margins are largely beyond domestic policy control. While groceries dominate household budgets, they are likely to remain the most stubborn part of the cost-of-living crisis.
Energy costs
Households are unlikely to see a repeat of universal energy credits. While many suppliers have announced price increases, the average cost of electricity, about €0.35 per unit, remains broadly similar to last year. Still, the Commission for Regulation of Utilities has warned of growing arrears without targeted supports.
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From RTÉ Radio 1's Late Debate, will there be a budget response to rising energy prices?
The Government is therefore more likely to direct relief through measures such as the fuel allowance rather than across-the-board credits. The reduced 9% VAT rate on energy, due to expire on October 30th, is also expected to be extended, but carbon tax increases will proceed, further raising fuel costs so no real reprieve can be expected here.
VAT
One way the Government may attempt to reduce costs for individual is through taxation costs for business. They are likely to reduce the hospitality VAT rate to 9%, but the specifics of this reduction are currently shrouded in uncertainty. There is potential to exclude large fast-food outlets from this and to delay implementation into 2026. Unfortunately, don’t expect this to impact the price of your daily coffee.
Hospitality has been crying out for this reduction to stave off financial ruin. With a spate of recent high-profile restaurant and café closures, this reduction would allow some breathing room for businesses, but is unlikely to be passed on to consumers.
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From RTÉ Radio 1's Today with Claire Byrne, should VAT for the hospitality sector be cut in Budget 2026?
In addition to this, the minimum wage is likely to increase to above €14 per hour in line with the Low Pay Commission recommendation. Effectively, any reduction in VAT will likely cover increased wages.
Putting money in people’s pockets
The main way this budget is expected to assist with the cost of living is by attempting to put money back in people’s pockets. Social welfare remains the Government’s most direct tool for easing pressure on vulnerable households. While early talk of a €12 weekly rise has been scaled back, an increase of around €10 is more likely. Broader adjustments to means-testing thresholds could also bring more families into the system. These changes, though modest, would provide the most immediate benefit to those most in need.
Childcare is another major cost for households and has been the subject of repeated promises. The Government pledged to cap weekly fees at €200, but delivery has lagged. Budget 2026 may only reduce the cap to €295, well short of the target. As with housing, the Government risks being judged on missed targets.
The Government is likely to increase the Rent Tax Credit by €500 per person. Given the constraints of the available tax cuts, they will not wish to allot a large chunk of its available leeway here and spread benefits too thinly. This commitment meets Fine Gael's election promise, and they will likely cite changes to rent pressure zones as vain hope that rents will stabilise.
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From RTÉ Radio 1's Today with Claire Byrne, will the budget tackle the high price of childcare?
For workers, income tax adjustments are expected to follow the pattern of recent years. The threshold for the higher rate is likely to rise by about €1,000 to €45,000, alongside a possible increase in the PAYE credit. These measures will offer some relief to middle-income earners, though far less than the pressures of food, rent or energy bills.
'The real challenge lies beyond this year'
While some areas of the cost-of-living crisis lie outside direct Government influence (grocery prices cannot be directly influenced), the Government will hope that addressing the cost of doing business will stabilise costs. For individuals, the Government is unwilling to continue broad-based measures like universal energy credits. These are politically popular but fiscally expensive and run counter to advice to target supports to those most vulnerable.
Other measures are obligatory. Carbon tax increases are locked in, and further rises are expected in excise duties on tobacco alongside the planned introduction of a new tax on vaping products.
If there is a brighter note, it is the Government’s growing willingness to prioritise long-term investment over short-term giveaways. Significant allocations from the €9bn are expected for multi-year projects in water, waste and health infrastructure, areas where Ireland has long lagged behind.
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From RTÉ Radio 1's Liveline, listeners wonder what the Budget will mean for them
Budget 2026 will be constrained. Households should not expect sweeping relief, while businesses will see only limited supports. Those most likely to benefit are the most vulnerable through social welfare. It is likely that incomes will slightly increase through lower taxes, and grocery bills should slow their exponential growth, but costs are unlikely to fall.
Yet the real challenge lies beyond this year. Without broader reforms - such as reviewing welfare thresholds, adjusting tax bands more systematically and reducing overreliance on volatile corporate tax receipts - budgets will remain exercises in patching holes rather than planning for the future.
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The views expressed here are those of the author and do not represent or reflect the views of RTÉ
