Economy

Strong income tax receipts keep public finances on right track

Latest exchequer returns show income tax generated €5.3bn in January and February this year, 5.7% ahead of the same period last year

Minister for Finance Michael McGrath. 'The 5.5% growth in tax revenues across the first two months of the year is broadly consistent with our forecast on budget day.' Photograph: Laura Hutton

Eoin Burke-Kennedy
Tue Mar 5 2024 - 16:35

Strong income tax receipts linked to having a record 2.71 million people at work have boosted the Government’s finances at the start of the year. The latest exchequer returns show income tax generated €5.3 billion in January and February this year, which was 5.7 per cent up on the same period last year. The annual increase in February alone was put at 9.2 per cent but some was “due to a timing factor”, the Department of Finance said.

The positive income tax trend reflects the current buoyancy of the labour market with a record 2.71 million employed in the Irish economy.

The figures show tax receipts across all headings rose to €12 billion at the end of February, €630 million or 5.5 per cent in advance of the same period last year, suggesting the Government at this early stage is on course for another record tax year.

VAT generated €4.3 billion for the two-month period, up 4.8 per cent year-on-year but February itself was a non-VAT month with receipts of just €428 million collected.

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February is not a significant month for corporation tax either, with receipts of just €583 million collected for the two-month period, down almost 10 per cent year-on-year.

Despite a wobble in the quarter corporation tax generated a record €24 billion last year, making it the second largest tax channel for the Government behind income tax.

[ Irish economy expected to resume strong growth path in 2024, predicts EY ]

The latest figures meant the exchequer was running a deficit of just €100 million at the end of February. This compares to a deficit of €2.5 billion recorded in the same period last year, an improvement of €2.4 billion. On a 12-month rolling basis department officials said the exchequer recorded a surplus of €3.6 billion.

Total gross voted expenditure amounted to €15 billion for the two months, which was €2.7 billion or 22 per cent in advance of the same period in 2023, the latest data showed.

Minister for Finance Michael McGrath said the figures represented “the continuation of trends observed last month and towards the end of last year”.

“The 5.5 per cent growth in tax revenues across the first two months of the year is broadly consistent with our forecast on budget day. However, I would emphasise that it is too early at this stage in the year to draw any conclusions about the trajectory of tax receipts, particularly before the key corporation tax payment months. The coming months will provide a firmer indication of the pattern of tax receipts across the year,” said Mr McGrath.

“Overall our economy has proven to be remarkably resilient against the backdrop of significant external uncertainty. In a more shock-prone world it is essential that we maintain our public finances on a sustainable footing: this is the best way to ensure that we are in the strongest possible position to respond to external challenges.”

The head of tax at KPMG, Tom Woods, said the March figures would give a better indication of how the economy was shaping up in 2024. “Economic data for March will also tell whether modified domestic demand for quarter 1 2024 recovered from the decline recorded in quarter 4 of 2023.”

Eoin Burke-Kennedy

Eoin Burke-Kennedy

Eoin Burke-Kennedy is Economics Correspondent of The Irish Times

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