ISME broadly welcomes Budget 2025 as a stable and responsible package that broadly maintains fiscal discipline in uncertain times. Employment remains at a record high level, reflecting the resilience of Irish enterprises and workers. However, considerable uncertainty remains, with persistent cost pressures, skills shortages, and housing challenges continuing to impact businesses, families, and communities across Ireland.
While inflation is projected to ease to around 2% in 2026, the cost of doing business remains unsustainably high. SMEs continue to face rising costs in energy, insurance, wages, and compliance, with little in this Budget to deliver the structural reform needed to support competitiveness or protect local employment.
While there are some reliefs for some businesses in terms of VAT reductions, these do not commence until the second half of 2026, while the cost increases associated with the minimum wage increase and auto enrolment will be immediate in January. Not all SMEs will make it through the next six months.
With the US economy under self-inflicted severe strain, and bond markets signalling fiscal stress in both France and the UK, ISME hoped for step-change but unfortunately, Budget 2026 has delivered only incremental change.
ISME highlights that Ireland already spends heavily on enterprise supports, but much of it is captured by large foreign companies. Among the issues ISME are highlighting include that R&D tax credits are concentrated in multinationals, with limited impact on SMEs. €1.5 billion sits idle in bank deposits that could be channelled into SME capitalisation via an Irish version of the UK’s ISA.
Meanwhile, the association warns that SME credit continues to fall in retail, hospitality and construction due to cost pressures and excessive risk.
Neil McDonnell, Chief Executive of ISME, said: “If we want to scale our indigenous enterprise base, we need ambitions and goals in the spirit of Ardnacrusha or Whitaker’s Programme for Economic Expansion.”
In its Pre-Budget submission, released in May this year, ISME made a number of recommendations to address this imbalance favouring large multinational businesses over Irish SMEs. These included:
- Business Costs – A reset on the national minimum wage calculation, legal reforms to deter vexatious lawsuits, and the reintroduction of the insurance ‘Blue Book’ to improve market transparency.
The European countries with the highest wages in Europe- Denmark, Switzerland, Norway, and Iceland, do not have a minimum wage. The UK has a higher minimum wage than Ireland, but its median wage is lower. Minimum wage rates are not the driver of higher earnings, only the productivity of the workforce.
While not a direct Department of Finance output on budget day, they must recognise that as long as the wider legal lobby continues to push for higher awards in a country which already has the highest personal injury awards in Europe, the costs of insurance will increase.
Ireland’s tax code has become one of the most complex in the world. ISME believes that a comprehensive simplification of the tax system is long overdue — to reduce compliance costs, improve transparency, and make it easier for businesses and individuals to plan and invest confidently.
- Indigenous Enterprise Policy – Targeted tax reliefs for Irish entrepreneurs, a reduction in VAT thresholds for exporters, and formal SME representation on the Labour Employer Economic Forum (LEEF).
In order to stimulate exports, a stated aim of Government policy, ISME proposed a change to Revenue rule Section 56 on VAT treatment for exporters. This would have cost the Exchequer nothing. This was flagged well in advance by ISME and has been omitted from the proposed Finance Bill. There remains time to rectify this silly omission before publication of the Finance Bill.
Our entrepreneurial taxes have required an overhaul for many years, one which would not cost us any real money. Yet again, we find that the EII, KEEP, and SURE systems have not been addressed. CGT has been maintained at 33%, which is costing the Exchequer at least €500m per annum.
The increase in the lifetime entrepreneurial relief from €1m to €1.5m is welcome, but is too small to encourage serial angel investors.
Improvement and simplification of the R&D tax credit is welcome, but to date, this credit has been overwhelmingly confined to the FDI sector. The taxpayer is subsidising multinational pharma and technology at the expense of indigenous enterprise. We welcome a greater targeting of this credit at the SME sector, but caution that it must not be strangled with regulation and red tape.
- Skills and Training – National Training Fund resources to be redirected towards lifelong learning and upskilling and a new ‘Blue Cert’ in business management aimed at SME owners and managers.
The failure to increase the Skillnet budget is a worrying development. Employers are levied €1bn per annum into the National Training Fund, of which they can access a paltry €60m (6%) of training funding, which they must match by at least two to one. The training levy is meant by law to be spent on life-ling and in-work learning, and our workforce has never been in such need of upskilling as now.
- Public Finances – ISME cautions against funding permanent current spending with volatile corporation tax receipts. The submission proposes a standing Public Pay Commission, greater use of the Rainy Day Fund, and reforms to the PRSI system to ensure fair contributions.
An increase of 8% in the Social Protection budget for 2026, when inflation is running at 2%, is worrisome.
In order to stabilise the massive unfunded deficit in our old-age pensions system, ISME called for an adjustment in PRSI to apply a 2% rate to all earnings, and a 6% rate to marginal earnings over €424 per week. We estimate this would increase contributions to the social fund by in excess of €850m per annum.
There is no voice for young people at the cabinet table. The constant increases in current spending which are funded by itinerant corporation taxes will ultimately impoverish young people. We need to take a longer-term and sustainable view of our public spending and our public pensions policies.
- Housing – With housing now acting as a de facto business cost, ISME called for tax incentives to unlock rental supply.
The VAT cut for apartment building is a most welcome stimulus in an area where we need to quickly increase output. Contrary to erroneous commentary from the Department of Finance, suggesting a cost of €250m for this measure, it will cost the Exchequer nothing, since the industry is simply not providing this accommodation now.
The increase in derelict property reliefs is substantial, and we hope will encourage much higher levels of participation.
The rental profit cost rental scheme which will exempt cost rental schemes from corporation tax is a sensible proposal.
Enhanced corporation tax deductions for conversions to apartments is also a wise move. The improvements to the Living City Initiative we hope will increase participation in this scheme.
The stamp duty extension for residential developments is a sensible measure.
These stimuli, while welcome, are far below what is required to get builders and landlords to re-enter a dysfunctional, over-regulated and over-taxed sector.
To help address housing supply immediately, ISME recommends a temporary Capital Gains Tax reduction to 20% for a 12-month period for “accidental landlords” who sell their properties to first-time buyers. This would free up existing housing stock, improve market mobility, and provide a practical short-term boost to home ownership.
In summary, Budget 2026 is steady but unambitious.
ISME’s full Pre-Budget Submission can be found online – https://isme.ie/wp-content/uploads/2025/05/ISME-Pre-budget-Submission-2026.pdf
