Dublin, Ireland – The Irish government’s plans for further income tax cuts could be at risk, as the country prepares for the economic fallout from new US trade tariffs announced by former President Donald Trump tomorrow.
Finance Minister Paschal Donohoe warned today that Ireland is “very likely” to face a significant economic challenge in the coming years, with potential risks to economic growth and job creation.
Economic Uncertainty Looms
On the eve of the significant tariff announcement, Donohoe admitted there is “uncertainty about what scenario the country is facing.”
He reiterated that while the government has pledged progressive tax reforms, they are contingent on economic stability.
“If we get hit by an economic shock, we will have to take actions to protect our economy and tax base,” he stated.
The government’s Programme for Government outlines that Ireland may need to scale back spending to avoid further economic strain if a financial downturn occurs.
Impact on Budget 2026 and Tax Policy
The Irish government had promised gradual tax changes over the next five years, including:
- Indexing tax credits and bands to prevent an increase in the real burden of income tax.
- Protecting taxpayers from inflationary pressures while ensuring fiscal responsibility.
However, Donohoe expressed doubts about future tax relief measures, stating that while previous tax cuts were affordable, future reductions would depend on economic conditions.
The minister will collaborate with Public Expenditure Minister Jack Chambers to assess the impact of tariffs before Budget 2026, which is due in October.
“There may be a decline in tax revenue,” he admitted, adding that the government will “better model the impact once the scale and duration of tariffs become clear.”
No New Cost-of-Living Support Package
Despite rising concerns over inflation and the cost of living, Donohoe confirmed that the government will not introduce another cost-of-living package.
“These measures cannot continue,” he said, noting that another package would cost €2.2 billion, which he argued could be “better spent in the years ahead.”
Instead, the minister’s priority is to protect tax revenue, sustain public services, and preserve jobs.
Jobs and Unemployment Concerns
Donohoe acknowledged that the impending tariffs could adversely affect employment, leading to slower job creation or even a modest rise in unemployment.
“The best forecast we can make at the moment is lower job creation and unemployment rates that might stop falling or could rise slightly,” he said.
However, he emphasized that Ireland’s ability to predict the full impact depends on the details of the US tariffs and how the EU responds.
EU’s Response and Investment Climate
On a more positive note, Donohoe highlighted the European Union’s measured approach in handling the tariff crisis.
He noted that the EU currently has record employment levels, making it more resilient to economic shocks. Additionally, uncertainty in the US market is prompting investors to reassess their commitment to Europe, which could benefit Ireland in the long term.
“There’s a growing appreciation of the value of predictability and order on the global stage,” Donohoe said, assuring that any EU policy shifts will be “thought out and predictable.”
What’s Next?
As Ireland awaits the official US tariff announcement, concerns over economic growth, taxation, and employment continue to mount. While the government has committed to fiscal prudence, the potential trade war between the US and EU could reshape Ireland’s economic trajectory for years.
