2026 Budget: Flat-rate tax relief would be beneficial for less well-off retirees
The €2,000 flat-rate tax reduction for retirees, announced by the government for the 2026 budget, would benefit "quite significantly" the least well-off households if it also applies to the calculation of housing benefits, and would generate a budgetary gain of "around €550 million" , according to the Institute of Public Policy (IPP). "The move to the €2,000 tax reduction is quite significantly redistributive, increasing benefits and reducing the amount of tax due for less well-off retirees while increasing the tax rate for more well-off retirees" , indicated the IPP, which brings together researchers specializing in the evaluation of public policies, on Tuesday, July 29.
As part of the next budget , the government wants to introduce a flat-rate allowance of €2,000 per year per person for retirement pensions. This measure would replace the 10% allowance for professional expenses currently available to retirees.
This 10% reduction is also applied to income declared to the Family Allowance Funds, to calculate eligibility for housing benefits. It is not yet known whether the flat-rate reduction will also replace it in this case. "Applying the new reduction method to the calculation of both income tax and housing benefits would be highly redistributive, while allowing for an improvement in the budget balance of around 550 million euros," the IPP estimated. "On the contrary, applying it only to the calculation of income tax would lead to revenues almost twice as high (around one billion euros), for a lesser redistributive effect and a large majority of losers from the reform," it indicated.
Currently, the amount deducted corresponds to 10% of retirement pensions , with a maximum of €4,399 (for 2024 income). The change has no impact on tax households with €20,000 in annual pensions (€40,000 for a couple).
Below this threshold, they will see their allowance increase. "They will therefore have incomes considered lower, which entitle them to pay less tax and receive more social benefits, while the opposite will be true for tax households receiving more than €20,000," the IPP explained.
This would translate into 1.5 million winners (9% of retirees) from social benefits versus 1.4 million losers (8%) from the tax increase. If only the tax reduction mechanism is changed, this would mean 100,000 winners versus 1.4 million losers, respectively.
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