Business

State collected €7.8bn in tax in January amid strong VAT receipts

Latest exchequer returns boosted by strong labour market and good Christmas sales

Minister for Finance Michael McGrath: the latest figures reflect the underlying strength of the Irish economy. Photograph: Gareth Chaney/Collins

Eoin Burke-Kennedy
Tue Feb 6 2024 - 16:46

Strong VAT receipts linked to the Christmas trading period and inflation have boosted the Government’s finances at the start of the year.

The latest exchequer returns show the sales tax generated just €3.8 billion in January, up 4 per cent or €148 million on the same month last year.

However, the Department of Finance noted that the year-on-year comparison was skewed by a technical factor linked to the withholding of VAT receipts in December 2022 and December 2023.

“Once this distortion is adjusted for, VAT in January was up by over 7 per cent,” it said.

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January is a VAT-due month and generally the strongest VAT month of the year, encompassing the Christmas trading period.

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Strong VAT receipts in January typically point to robust consumer spending in November and December.

While separate data show retail sales were up during those months, the current high rate of inflation is also likely to be driving receipts. Consumers must spend more to buy the same amount of goods during periods of elevated price growth, which inadvertently boosts government VAT receipts.

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Overall the Government collected €7.8 billion in tax in January, which was €358 million or 4.8 per cent ahead of the same period last year.

Besides VAT, the increase was driven by income tax, which generated €2.9 billion, nearly 3 per cent ahead of the same month last year, reflecting strong labour market conditions. January is not a key month for corporation tax and just €57 million worth of receipts were collected last month.

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The figures gave rise to an exchequer surplus of €2.3 billion for January compared to a surplus of €2.8 billion recorded in January 2023, a decline of close to €600 million. Total gross voted expenditure for January amounted to €7.5 billion, up by €1.1 billion or 16.6 per cent on 2023.

Minister for Finance Michael McGrath said the latest figures reflected the underlying strength of the Irish economy.

“Today’s figures show that aggregate tax receipts continued to display steady growth at the start of the year, with tax revenues increasing by almost 5 per cent compared to January of last year,” he said.

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“This is a solid start to the year, and is a clear and welcome demonstration of the continuing resilience of our economy, notwithstanding the undoubted headwinds in the global economy,” he said.

He also noted that the figures came “on the heels” of data showing a welcome moderation in the rate of inflation.

“It is essential that we remain vigilant to the risks to our public finances: the headline tax revenue figures for 2024 will, as has been the case in recent years, be heavily reliant on volatile corporation tax revenues, which showed considerable volatility last year. The first significant month for corporation tax revenue is expected to be March,” he said.

Tom Woods, head of tax at KPMG, said: “January is the biggest month for VAT receipts as it encompasses the Christmas trade with the VAT take for Christmas 2023 up 4 per cent or €148 million on the previous year reflecting sustained consumer spending along with inflation on the cost of goods and services”

Eoin Burke-Kennedy

Eoin Burke-Kennedy

Eoin Burke-Kennedy is Economics Correspondent of The Irish Times

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