Revenues from tax on company profits will slide this year, ending a period of bumper returns for the exchequer, officials warned as the Government prepared to announce Budget 2024 next week.
Exchequer figures published on Tuesday show that corporation tax – paid by companies on their profits – slipped to €1.8 billion in September, €300 million or 12.4 per cent less than during the same month last year.
That was the second month in a row that revenue collected from this key source was down, although the total paid by companies so far this year was up €600 million or 4.4 per cent at €14.4 billion.
News of the second monthly slide in corporate revenues comes as the Government finalises spending and tax plans for next year, which it will announce next week in Budget 2024.
Speaking after the figures were published, John McCarthy, Department of Finance chief economist, noted that the corporation tax take during the third quarter was down by 23 per cent on the same period last year.
He said that while corporation tax was up on last year in the year to date, annual receipts were likely to be below the figure projected in the early part of this year.
“It seems likely that tax revenue will undershoot the projections we set out in the spring,” he said.
The Government had originally hoped to raise €24 billion from taxes on corporate profits, and as recently as last June, Department of Finance insiders suggested that revenues could top that figure.
News of what some observers dubbed a “surprise” fall in corporation tax payments sparked speculation that a period of bumper returns from this source is ending.
Record revenues, driven mostly by high profits from the sale of Irish-manufactured drugs for treating cancer and other diseases, have boosted Government finances in recent years and contributed to an €8 billion surplus in 2022.
Tom Woods, head of tax at accountants KPMG, cautioned that this could be “the year that the known vulnerabilities in our corporation tax receipts start to bite”.
He argued that the Government should take a more focused approach to its spending when it sets out Budget 2024 next week.
Michael McGrath, the Minister for Finance, who will announce the budget next week with Minister for Public Expenditure Paschal Donohoe, pointed out that both had been warning for some time that bumper corporate tax returns were unreliable.
“We have been saying that a moment of change will come,” Mr Donohoe added.
Mr McGrath said that corporation tax was still growing – but at a “dramatically” slower pace. “It just reaffirms our determination to be careful in the overall management of the finances,” he said.
Workers and businesses paid a total of €61.4 billion in taxes to the Government in the first nine months of this year, the exchequer returns, published on Tuesday afternoon, showed.
Total revenues over the same period, including those from sources other than tax, came to €76 billion, according to the figures.
The Government spent €74.9 billion in first nine months of the year. This included €64.4 billion spent by its individual departments, which was €5.2 billion or 8.7 per cent more than during the same period in 2022.
Workers paid €2.4 billion in September, an increase of €200 million or 8.3 per cent, on the same month in 2022.
The Government has collected €23.1 billion in income tax so far this year, €1.8 billion or 8.2 per cent more than over the same period in 2022 and in line with its predictions for 2023.
VAT rose €1.5 billion or 9.7 per cent to €16.8 billion over the nine months ended September 30th.
Mr Woods noted that healthy VAT and income tax returns showed “an economy that is operating at close to full employment with consumption remaining strong”.