Bumper tax revenues in November have put the Government’s finances on track for a record surplus this year, with income tax, VAT and corporation tax receipts all remaining strong despite the uncertain economic outlook.
But Minister for Finance Paschal Donohoe reiterated his recent warnings that notwithstanding the “very robust” performance, the strength of “potentially volatile” corporation tax receipts was creating “an artificially positive picture of the public finances”.
The latest exchequer returns show the Government collected €77.5 billion in tax in the 11 months to the end of November, up €15.2 billion or 24.5 per cent on the same period in 2021.
The tax coffers were boosted by almost €13.6 billion in the key month of November alone, which was €2.2 billion higher than the sum collected in November 2021.
Planning regulator Niall Cussen: We can overcome the housing crisis, ‘if we put our minds to it’
On his return to Web Summit, the often outspoken chief executive Paddy Cosgrave is now an epitome of caution
Surviving a shake-up: is restructuring ever good for staff?
The Irish Times Business Person of the Month: Dalton Philips, Greencore
Income tax revenues last month arrived at €4.4 billion, up by about €600 million or 16 per cent on the same month last year.
For the 11 months of 2022 to date, income tax receipts stand at €28.3 billion, up €3.8 billion or almost 16 per cent ahead of the same period in 2021, with Mr Donohoe describing these figures as “a positive signal of the continued momentum in the labour market”.
[ Unemployment still at two-decade low despite souring outlookOpens in new window ]
Corporation tax receipts amounted to €5 billion last month, ahead by almost €1 billion on an annual basis. Cumulative corporation tax receipts for 2022 stand at €21.1 billion, a massive €7.6 billion or 56 per cent ahead of the same period in 2021 and well ahead of expectations at the start of the year.
The category has “comfortably” overtaken VAT to become the State’s second largest source of revenue this year. However, the Department of Finance repeated its now regular caveat that some of these receipts are “expected to be once-off in nature and will not reoccur next year”.
The Minister noted that corporation tax collected this year will be double the level seen in 2019 and around five times the level recorded a decade ago. The Government has not used what may prove to be a transitory bonanza to fund higher levels of permanent spending, he said.
Some €2 billion has instead been set aside via the National Reserve Fund, with a further €4 billion set to be transferred to this fund next year.
“I fully appreciate that for so many the rising cost of living, and in particular, the cost of energy is a real challenge. The Government has and will continue to help citizens and businesses deal with these rising costs but we must ensure that the support we provide is sustainable and does not put our public finances on an unsustainable path,” Mr Donohoe said.
VAT receipts of €3.1 billion were collected in what is the final VAT-due month of the year. This was ahead of November 2021 by €0.5 billion or 19 per cent.
Revenues from VAT for the year to the date come to €18.5 billion, an increase of €3.4 billion - or 22 per cent - on the same period in 2021, reflecting the recovery in consumption since the pandemic.
What will the easing of bankers’ pay restrictions do for competition dynamics?
After Finance Minister Paschal Donohoe's surprise move to ease restrictions on pay and bonuses in the banking sector, we look at what it might mean for the three domestic banks and their international competitors. Markets Correspondent, Joe Brennan, also takes us through the rest of the headline-grabbing details in the 220 page Retail Banking Review. Ciaran is also joined by the Irish Times' Karlin Lillington to discuss the €265m fine handed down to Meta this week over its data protection breach. With fines now totalling over €900m, will it have made Mark Zuckerberg sit up and notice?
Excise duty receipts of about €450 million were collected last month, down by 30 per cent or €190 million on the same month last year, which was a particularly strong month for excise receipts.
For the year to date, receipts have arrived at €5 billion, down by almost €300 million or 5 per cent on the same period last year. The “relative weakness” relates to Government policies to alleviate the impact of the rising cost of living.
Large surplus
An exchequer surplus of €12.1 billion was recorded for the first 11 months, which compares to a deficit of €1.5 billion a year earlier - a swing of €13.6 billion. As well as buoyancy in tax revenues, this reflects lower spending due to the unwinding of Covid support measures.
The final end-year surplus will be “much lower”, the Department said, as December is the biggest month for expenditure, while the fiscal accounts do not yet fully include the impact of the Government’s winter cost-of-living measures.
On a 12-month rolling basis, a better indicator of the trend, the exchequer surplus stands at €6.2 billion.
[ Irish inflation slows to 9% as prices ease in wider euro zoneOpens in new window ]
But if so-called windfall corporation tax receipts are excluded, this amounts to a “significant” underlying deficit of approximately €5 billion on a 12-month rolling basis.
The windfall is linked to the strong performance of multinationals in the pharma and technology sectors that enjoyed a surge in demand for their products and services during the pandemic.
On the spending side, the exchequer returns show that total expenditure to the end of November was €86.9 billion. Of this, gross voted expenditure stood at €75 billion, which was about €200 million below the same period in 2021, but higher than had been expected at the start of the year. Non-voted expenditure accounted for €11.9 billion, or €3.9 billion below the same period in 2021.
“At end November, €75 billion has been invested to date in 2022 across a range of public services to support households, businesses and the economy,” said Minister for Public Expenditure and Reform Michael McGrath.
“The higher than profiled level of current expenditure reflects the Government’s response to a series of external challenges experienced this year, including high levels of inflation and the war in Ukraine.”
Lag factor
Business group Ibec welcomed the figures, as well as separate data from the Central Statistics Office that showed an increase of 2.3 per cent in gross domestic product (GDP) in the third quarter.
Ibec economist Hazel Ahern-Flynn pointed to the impact of high employment growth on tax revenues.
“While corporation tax may get the headlines, it is notable that income taxes have risen by an exceptional 16 per cent in the first 11 months of the year.”
Peter Vale, a tax partner at Grant Thornton Ireland, said the exchequer figures again demonstrated the “remarkable resilience” of the Irish economy despite global headwinds and concern about recent job losses.
“It is possible that the natural lag before the impact of job losses is felt will see income tax figures slip in coming months. However, the Department will hope that the relatively low number of redundancies will mean income tax receipts remain buoyant,” he said.
“While uncertainty remains the key theme, there will be huge relief in Government circles at the latest exchequer figures. Tax receipts running €15.2 billion ahead of the same period in 2021 is a remarkable performance.”
