Buoyant corporate tax receipts are creating an “artificially positive picture” of the public finances, Minister for Finance Paschal Donohoe has warned. He was speaking as the latest exchequer returns pointed to another spike in business tax receipts.
The tax generated €16.6 billion for the 10 months to the end of October, €6 billion – or 69 per cent – ahead of the same period last year. Receipts for October alone were €2.3 billion, which was €800 million up on the same month last year.
Full-year receipts for the business tax are now expected to come in at about €20 billion, making it the second largest tax take for the Government ahead of VAT.
The windfall is linked to the strong performance of Ireland’s multinational sector, which is dominated by pharma and technology companies. The sector, in many instances, saw a pickup in demand for products and services during the pandemic.
The Department of Finance said the increase related to profits in a small number of companies in the multinational sector, “which are unlikely to be repeated next year”.
The Government has been repeatedly warned about the concentration risk associated with corporation tax, with just 10 firms, thought to include Apple, Microsoft and Google which all have big European bases in Ireland, accounting for 60 per cent of receipts.
Mr Donohoe said that the strength of potentially volatile corporate tax receipts continued to provide an artificially positive picture of the public finances. “As I have warned on many occasions, while these receipts are welcome, it is imperative that Government does not build up permanent fiscal commitments on the basis of revenues that may prove transitory,” Mr Donohoe said.
The Government is planning to set aside €6 billion of additional revenue from corporate tax in the newly established National Reserve Fund by the end of next year.
The latest exchequer returns show the Government collected almost €64 billion in taxes overall in the 10 months to the end of October, which was up €13 billion or 25 per cent on an annual basis.
Income tax receipts came to €23.9 billion by the end of October. That was €3.2 billion, or 15 per cent, ahead of the same period last year, reflecting strong employment growth.
VAT receipts for the year to date stand at €15.5 billion, an increase of €2.9 billion, or 23 per cent, on the same period in 2021, reflecting the bounce back in retail spending since Covid. However, the department cautioned there was a significant base effect in the VAT figures “as the economy was still in lockdown through the early months of 2021, depressing VAT receipts and flattering the comparison”.
The stronger-than-expected numbers generated an exchequer surplus of €7.3 billion in October, a turnaround from a deficit of €7.4 billion this time last year, which equates to a year-on-year improvement of almost €15 billion.