Expansionary Irish budget targets business over tax cuts for workers

By Padraic Halpin and Graham Fahy

DUBLIN, Oct 7 (Reuters) - Ireland focused on cutting business taxes, incentivising foreign investment and improving stretched public services and infrastructure when it tapped some of Europe's healthiest public finances on Tuesday for its latest expansionary budget.

While a year-long multinational corporate tax boom that shows no sign of slowing has given Dublin enviable leeway among EU states to cut taxes and rapidly increase spending, ministers pledged more discipline with this and future budgets.

The budget still hiked 2026 day-to-day spending by at least 6.2%, or 7.3% if a 1 billion euro reserve for potential overruns is used. That was lower than 8%-9% increases in recent years, with the slower increase intended partly to guard the foreign investment-focused economy from exposure to U.S. trade policies.

"This budget will build up our resilience and will help us to adapt at a time of historic challenge for our economy," Finance Minister Paschal Donohoe told parliament.

KEY INCENTIVE FOR FOREIGN INVESTMENT BOOSTED

The change in focus from last year's larger pre-election giveaway budget brought an end to recent one-off support payments that eased cost of living pressures.

A cut in the VAT rate for food businesses and for much-needed apartment building left no room for a repeat of an across-the-board indexation of income tax bands to inflation, which analysts said would effectively amount to a tax rise for many households.

Donohoe said he hoped to make income tax changes in future budgets amid sharp criticism from opposition parties.

"The takeaway for workers is no jam today, jam tomorrow. There's next to nothing in this dangerously oversized budget that's going to lift their living standards," said Laura Bambrick, head of social policy at the Irish Congress of Trade Unions (ICTU).

The bulk of the extra 9.4 billion euros available again went towards public services and welfare supports to meet the demands of a fast-growing population and economy that has so far shrugged off the threat of tariffs, with Donohoe's department increasing its growth forecast to 3.3% from 2% previously.

Ministers had already outlined plans to boost capital spending by 30% by 2030 to narrow a large infrastructure deficit with similar economies, a risk to future foreign investment.

The rate for a tax credit for research and development - one of the main tools used to attract foreign multinationals whose jobs and taxes are pivotal to the economy - was increased to 35% from 30%.

That was in line with the rate most representatives for foreign multinationals had called for, and Donohoe also committed to considering additional targeted changes to widen the scope of the regime in the coming weeks.

"That will help us win new mobile investment projects next year," said Fergal O'Brien, a director at business lobby group Ibec.

The government also reduced the tax rate on investment in funds products to 38% from 41% and pledged to publish a plan early next year to simplify the tax framework to encourage retail investment.