Corporate taxes beat target as Government budgets for no-deal Brexit slowdown
Department of Finance sees GDP growth slowing to 0.7% under disorderly Brexit
For September alone, corporate taxes jumped by almost 15 per cent to €910 million. Photograph: iStock
The Government’s corporate tax take was almost 11 per cent ahead of target at €5.84 billion for the first nine months of the year, offering the Minister for Finance Paschal Donohoe marginal extra leeway for next week’s budget.
Mr Donohoe is planning the budget on the basis of a no-deal Brexit, which would see economic growth slowing next year to 0.7 per cent, compared to 3.3 per cent expansion projected in the spring, he said on Wednesday as he unveiled the latest exchequer figures.
The economic forecasts have been endorsed by the Irish Fiscal Advisory Council, as required by EU rules, he said.
Total taxation rose by 8.7 per cent to €40.8 billion in the first nine months, coming in 1.7 per cent ahead of forecasts, for the period, helping the exchequer to edge into a surplus of €38 million so far this year, the Department of Finance said on Wednesday. This compared to a €1.47 billion deficit for the corresponding period in 2018.
“Today’s data show Minister for Finance Paschal Donohoe has a little more room for tax cuts and expenditure rises in Budget 2020 on October 8th,” said Davy economist Conall MacCoille.
The Minister said that the strong fiscal performance seen so far this year reflected a growing economy, even as it prepares to deal with challenges, including Brexit.
The Government has raised its 2019 gross domestic product (GDP) growth forecast for this year to 5.5 per cent from 3.9 per cent, after growth for the first half exceeded expectations.
“It is paramount that we continue to build on this work, including through continued careful management of expenditure and the public finances generally,” Mr Donohoe said.
Corporation tax receipts
Corporation tax receipts – up 13.2 per cent so far in 2019 – have more than doubled over the past four years as a number of US-owned multinationals have transferred vast swathes of intellectual property to the Republic. This has boosted their local profits against a backdrop of a global clampdown on assets being kept in zero-rate jurisdictions. It generated more than €10 billion last year.
For September alone, corporate taxes jumped by almost 15 per cent to €910 million, beating Department forecasts by more than 36 per cent.
Grant Thornton tax partner Peter Vale said while the tax returns are “good”, it is not known how sustainable corporate tax receipts are.
“We fully expect a prudent Budget next week, with little in the way of tax cuts, although there may be relief for some Irish indigenous business owners/entrepreneurs,” he said.
Income tax rose by 8.4 per cent in the first nine months to €15.8 billion, beating forecasts by 0.3 per cent. VAT, the State’s second-biggest tax earner, tracked 6.4 per cent higher to €12.3 billion, albeit 0.4 per cent shy of target.
Net voted expenditure, while up 6.9 per cent at €38.5 billion and driven by capital spending, was 1 per cent below Department projections, further helping the exchequer’s move into a surplus. Non-voted expenditure declined by 1.4 per cent to €6.43 billion.
Mr Donohoe is preparing the Budget, due to be unveiled next Tuesday, on the basis of the UK crashing out of the EU without a deal. This prompted him to tell the Dáil week that Government funding will go beyond the pledged €2.8 billion package that had previously been outlined. Some €2.1 billion of that amount has already been committed.
The Minister said that under a no-deal scenario, there would be a “temporary deficit” rather than the surplus the Government would otherwise have expected.
The Parliamentary Budget Office warned in a pre-budget submission on Tuesday that a no-deal Brexit could result in a €6.5 billion hit to the exchequer, arising from lower tax revenues and increased spending to help the economy deal with the fall out, as well as other social supports.