Booming tax receipts generate €4.2bn surplus for Government

Strong exchequer returns driven by corporation tax, VAT and income tax and lower spending on Covid supports

Booming tax receipts generated a strong exchequer surplus of €4.2 billion in June, handing the Government greater room for manoeuvre on cost-of-living measures in the upcoming budget.

This compares with a deficit of €5.3 billion this time last year, which represents an improvement of almost €9.5 billion year on year.

The latest exchequer returns, published by the Department of Finance, were driven by strong out-turns in corporation tax, VAT and income tax as the economy recovers from the impact of the pandemic.

However, senior department officials warned that inflation and higher living costs were likely to negatively impact tax receipts later in the year.

The figures came as the Government published its Summer Economic Statement, showing it has earmarked a budgetary package for next year of €6.7 billion, an increase of €1.7 billion on what was previously planned.

Minister for Finance Paschal Donohoe noted there had been a “further strong performance” in tax receipts in the first half of the year.

However, he warned there is mounting evidence that the recent economic momentum “is now slowing”and the recovery in demand has run up against capacity restraints which has increased prices.

The latest exchequer returns show the Government collected just under €37 billion in taxes for the six months to the end of June. This was up 25 per cent or €7.4 billion on the same period last year.

The tax take was boosted by the continued strong performance of corporation tax, which generated €8.8 billion for the period, 53 per cent up on last year’s total, suggesting the exchequer is headed for another record business tax windfall. Corporation tax receipts amounted to €3.6 billion in June alone.

The Government’s budgetary position was also aided by €9 billion in VAT receipts, a reflection of the strong retail environment that exists despite the cost-of-living squeeze.

Income tax receipts, the Government’s main tax channel, was also strong, generating €14.2 billion, almost 17 per cent up on last year. This reflects the rapid recovery in employment across the economy.

Unemployment stands at a pandemic low of 4.7 per cent, on a par with the pre-pandemic rate.

The public finances were also boosted by a decline in spending linked to the unwinding of Covid-related supports, the department said.

Total voted expenditure for the period amounted to €38.5 million, which was €1.4 billion or 3.5 per cent below the same period in 2021 and broadly on profile.

The Government’s employment wage subsidy scheme for Covid-impacted businesses ended in May, while the pandemic unemployment payment for affected workers was phased out in March.

While the figures led to an exchequer surplus of €4.2 billion in June, on a 12-month rolling basis, a better indicator of the trend, the surplus stood at €2.1 billion, the Department of Finance said.

“While consumers are clearly concerned about cost of living increases, including interest rate hikes, so far it does not appear to have impacted on spending,” Peter Vale, tax partner at Grant Thornton Ireland, said.

“While inflation will partly act as a counterweight, there is a risk of a slowdown in spending in the second half of the year, potentially spelling an end to the higher VAT receipts seen earlier in the year,” he added.

Frank Greene, tax partner with Mazars, said: “The increase in income tax receipts could continue due to the high employment rate however the level of VAT and corporation tax receipts may not continue ad infinitum and dialling in long term spending commitments where tax receipts could come under pressure may not be prudent.”

He added: “We are therefore likely to see some permanent increases while more targeted measures against inflation and energy prices may be in the form of once off benefits which are less costly in the longer term.”

Eoin Burke-Kennedy

Eoin Burke-Kennedy

Eoin Burke-Kennedy is Economics Correspondent of The Irish Times