'We made an error in last year's budget... we are not going to repeat it.' Major boost for the squeezed middle as report into the cost-of-living crisis set to make surprise recommendation

Published: 23:42, 28 June 2026 | Updated: 23:42, 28 June 2026 Proposed tax cuts are expected to be backed by a report into dealing with the cost-of-living crisis by the powerful Budgetary Oversight Committee. The report, due this week, will give Tánaiste Simon Harris’s tax-cutting plans a major shot in the arm by supporting the full indexation of tax bands to inflation. In a draft of its key recommendations seen by the Irish Daily Mail, the report will propose that ‘Budget 2027 provide for the indexation of income tax bands and tax credits to inflation’. ‘Indexing’ the tax bands means they rise in line with inflation and wages, so lower earners are not drawn into higher rate tax bands as their incomes rise. One Government minister noted: ‘Harris will be a very happy man this week. There has been a parade of tax-cut deniers across the airwaves in recent months. The squeezed middle are likely to see some tax relief in this year's budget ‘Now he has the support of the main committee in charge of supervising his department,’ the minister said. ‘This is a significant document... These are the views of significant people.’ The committee, which is chaired by Richard O’Donoghue of Independent Ireland, also has the Sinn Féin finance spokesman Pearse Doherty and Social Democrats finance spokesman Cian O’Callaghan in its ranks. One Fine Gael minister said: ‘Tax is going in one direction – down. We are winning the battle of ideas and the battle on the ground. Tax reform for the squeezed middle is coming.’ Another senior Fine Gael figure added: ‘There is going to be a budgetary reset on tax this year. ‘It was an error not to cut tax last year and we are going to repeat it. Tax cuts for the squeezed middle, Simon’s people, will be an ongoing theme of the Coalition.’ In another significant change, the Budgetary Oversight Committee is also expected to support the linking of fuel allowance and household energy supports to the cost of energy. One source noted: ‘It would bring a greater certainty when it comes to knowing how the State will respond to future energy crises.’ In compiling its report, the committee heard from the Economic and Social Research Institute (ESRI), University College Dublin, Trinity College Dublin, the Irish Congress of Trade Unions, the Society of Saint Vincent de Paul, Social Justice Ireland and the Nevin Economic Research Institute. It was commissioned to outline the ‘budgetary measures (which) can be targeted to support workers and their families in both urban and rural areas, including vulnerable households, such as older people living alone, lone-parent families, people with disabilities and those experiencing energy poverty’. Though the decision will be politically welcomed by Finance Minister Simon Harris, full budgetary indexation carries significant costs. A Tax Strategy Group (TSG) report last year revealed that full indexation of the income tax system (assuming inflation of 4%) would cost more than €1.1billion. This would cover tax credits as well as the standard allowance. Finance sources also believe that a €2,000 increase in the standard rate band would cost €505million in lost revenue. The Irish Daily Mail revealed last week that Mr Harris is planning to engage in an ambitious tax-cutting strategy where no one in the country will pay the higher rate of tax until ‘they earn more than a thousand euro a week’. Currently taxpayers enter the higher rate of tax band once they earn more than €44,000. The Mail was also told by a senior minister that the move is seen as representing ‘a logical follow-on to the policies of Enda Kenny and Leo Varadkar where the higher-rate threshold rose from €33,000 to €44,000’. ‘The Tánaiste is completing the job of tax reform for the squeezed middle,’ they added. The Programme for Government pledged that there would be ‘progressive changes in taxation if the economy remains strong, including indexing credits and bands to prevent an increase in the real burden of income tax’. However, any move to implement the commitment is likely to be criticised by the State-appointed watchdog of the national finances, the Irish Fiscal Advisory Council (IFAC) and the Central Bank which have already issued a series of warnings over what they perceive to be excessive State spending. One senior Government figure noted: ‘The Budget Oversight Committee report will give us serious credibility when it comes to combating these academic people in IFAC. It is compiled with bodies like the ESRI. It is a proper job of work.’ However, a minister warned that ‘it will dig deep into the planned allocation for tax reform. ‘This is serious money,’ they added. ‘The amount of money available for tax cuts is somewhere around €1.25billion to €1.5billion. We may have to increase the envelope,’ the minister said. Tensions meanwhile continue to increase within the Coalition over what Fianna Fáil perceive to be Fine Gael’s ‘thievery of the tax cuts agenda’. Fianna Fáil junior minister Niall Collins warned last week: ‘Looking after working people and the squeezed middle is our priority. ‘They were squeezed out of the Budget last year. Fianna Fáil have been very clear it won’t happen this year.’ However, one Fine Gael minister warned ‘we are not going to tolerate any Fianna Fáil larceny of our ideas’. They added: ‘Tax reform is our issue. Fianna Fáil will not be allowed to appear two or three weeks after we adopt a leadership position and claim it as their own’. The committee’s report also proposes ‘linking the value of the fuel allowance and household energy supports to the cost of energy, so its value is maintained over time’. It is believed the final report will also recommend that local authorities become much more proactive in tackling the retrofitting of homes. Sorry we are not currently accepting comments on this article.