Exchequer surplus drops to €1.2bn from €5bn in 2022

Government tax receipts surged to a record €88.1 billion last year despite the economic slowdown and fears that 2023 would be marked by a reversal in corporate tax payments.

The year-end exchequer returns, published by the Department of Finance on Thursday, came as new figures showed inflation in the Irish economy rose to 3.2 per cent in December, up from 2.5 per cent the previous month, dampening hopes of an imminent end to the current cycle of ever-rising prices.

Wider euro zone inflation data due out on Friday is also expected to show an increase in headline inflation for December, denting the prospect of a European Central Bank (ECB) interest rate cut in the first quarter of 2024 as some market analysts had been forecasting.

The latest exchequer numbers show tax receipts rose by almost €5 billion or 6 per cent last year, driven by strong growth in income tax, VAT and corporation tax.

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After falling for three consecutive months between August and October, corporation tax receipts came in at a record €23.8 billion for the year, €1.2 billion or 5.3 per cent up on the 2022 figure and slightly ahead of the Department of Finance’s forecast. Receipts from the business tax amounted to €1.8 billion in December alone, up 20 per cent on an annual basis.

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Income tax generated €32.9 billion for the year as a whole, up €2.2 billion or 7.1 per cent on 2022, reflecting the strength of the labour market, while VAT receipts totalled €20.3 billion, up over 9 per cent year on year despite ongoing cost-of-living pressures. VAT is seen as providing a reliable insight into consumer behaviour.

Overall, an exchequer surplus of €1.2 billion was recorded in 2023 compared with a surplus of €5 billion the previous year.

However, when transfers to the State’s National Reserve Fund, proceeds from the disposal of State-owned bank shares and excess corporation tax receipts are removed, the Government recorded an underlying deficit of €6.5 billion.

[ Analysis: 2023 may go down as tax sweet spot but storm clouds loom ]

Minister for Finance Michael McGrath said overall tax receipts came in largely as anticipated “and reflect the underlying strength of our economy, especially the labour market”.

“It must be acknowledged, however, that the budgetary surplus includes windfall corporation tax receipts which, if excluded, would result in an underlying deficit,” he said.

“Indications are that pandemic-era surge in exports in a small number of sectors — which drive corporate profitability in Ireland — are now unwinding; this would mean more modest growth in corporation tax receipts in the coming years,” Mr McGrath said.

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