Surging tax revenues provide Government with war chest ahead of budget

Surging tax revenues have boosted the Government’s financial position in advance of the budget in October.

Half-year exchequer returns published on Tuesday by the Department of Finance show the Government collected just under €41 billion in taxes during the first six months of the year, 11 per cent or €4 billion more than the same period last year.

The increase, driven by continued growth in corporation tax, income tax and VAT, is likely to pile further political pressure on the Coalition to loosen the purse strings and address cost-of-living pressures in October’s budget.

Corporation tax generated a record €10.5 billion for the six-month period, €1.8 billion or 20 per cent more than this time last year.

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The department said the performance was driven by “significant increases in profitability in the multinational sector”. Business tax receipts are expected to hit a record €24 billion this year, according to department forecasts.

On a cumulative basis, income tax receipts of €15.5 billion were €1.3 billion (8.9 per cent) in advance of the same period last year and according to the department, “somewhat above profile”. The better-than-expected receipts reflect the State’s strong labour market.

VAT receipts, an indicator of consumer spending, were also in advance of target for the year, generating €10.3 billion, €1.2 billion (13.5 per cent) higher than in the same period last year.

[ Summer Economic Statement and half-year tax returns to set budgetary parameters ]

The figures come as Minister for Finance Michael McGrath published the Government’s Summer Economic Statement, which signalled the Coalition was planning a budgetary package of approximately €6.4 billion for October’s budget, comprising an additional €5.25 billion in core spending and a tax-cutting package of €1.15 billion.

Mr McGrath said the latest exchequer numbers “show that, broadly speaking, we are where we expected to be in terms of tax revenue”.

“Income tax and VAT remain robust, demonstrating the strength of our economy, but volatile corporation tax continues to pose a vulnerability for the public finances,” Mr McGrath said.

“The best way to ensure that we retain the fiscal firepower to address the issues of today and the challenges on the horizon is by maintaining a sensible budgetary policy that balances investment in our public services and infrastructure with the long-term sustainability of our public finances.”

The department’s data points to a modest exchequer surplus of €300 million for the six months to the end of June, down from a surplus of €4.2 billion for the same period last year. The difference was explained by the transfer of €4 billion to the National Reserve Fund in February.

Total expenditure for the period amounted to €50.9 billion.

KPMG head of tax Tom Woods said the stellar performance of income tax, corporation tax and VAT receipts in the first half of 2023 reflects the buoyancy of the Irish economy.

[ Corporate tax receipts likely to be €2bn above forecast on back of increased iPhone sales ]

“June is traditionally the second largest month for corporation tax and we saw a 20 per cent growth in June receipts compared to last year, with cumulative corporation tax receipts for the year now at €10.5 billion, again 20 per cent higher than last year,” Mr Woods said.

“To put this scale of growth into context, €10.5 billion for the six months in 2023 was greater than the total corporation tax receipts collected five years ago in 2018.”