The Government has received a major financial boost ahead of next week’s budget with the latest exchequer returns showing tax receipts running €2.5 billion ahead of target.
The figures for the first nine months of the year were buoyed by a sharp rebound in VAT receipts linked to the reopening of the economy and another surge in corporation tax associated with several large payments from multinationals in the tech sector and increased corporate profitability generally.
The sales tax generated €2.6 billion in September alone, which was 13.7 per cent, or €316 million more than expected, reflecting what the department described as “the strong recovery in consumption”.
Cumulatively VAT receipts for the year at €12.6 billion were €893 million above profile. “Tax receipts to end-September offer another positive sign as to the speed of our economic recovery,” Minister for Finance Paschal Donohoe said. “VAT receipts, in particular, have rebounded very strongly as the economy opened up over the summer,” he said.
The Government’s budgetary position was also strengthened by another acceleration in corporation tax, which generated over €8 billion for the nine-month period, €1 billion more than expected.
The total was also nearly €600 million ahead of last year's record tally and comes as Ireland faces mounting international pressure to give up its much-coveted 12.5 per cent headline rate and accept OECD proposals for a new global minimum rate of at least 15 per cent.
Mr Donohoe said Budget 2022 will further cement the State’s recovery from the pandemic but he warned Monday’s better-than-expected tax receipts would not be used to fund additional expenditure.
“The €4.7 billion package to be delivered on Budget day strikes the right balance between expanding and improving our public services, investing in infrastructure and reducing the deficit,” he said.
The latest exchequer data showed cumulative tax revenues of €45.6 billion were generated for the first nine months of the year. This was €2.5 billion, or 5.8 per cent, ahead of target.
The Government’s headline budget deficit – on a rolling 12-month basis – was €9.1 billion in September reflecting ongoing expenditure on pandemic-related supports.
The strong performance in VAT and corporation tax made up for a slight shortfall in income tax and excise duty, which came in below expectations for the month.
On the spending side, gross voted expenditure to the end of September amounted to €60.6 billion. This was almost €2 billion below profile as a result of an “underspend” across several departments.
“Undoubtedly the shutdown in construction in the early part of the year has impacted on spending within departments,” a senior official said, noting some of this could be carried over into next year.
A stronger-than-expected recovery in the labour market is also expected generate savings for the Government on the current spending side.
The debt servicing costs linked to Ireland’s monster €240 billion debt was €3.4 billion, down €522 million or 13 per cent on last year.
Concern has been raised about the likely impact of higher interest rates on Ireland’s debt position.
Responding to the latest exchequer numbers, Peter Vale, tax partner at Grant Thornton Ireland, said: “Strong earnings across most sectors of the economy have translated into higher spending and resultant buoyant VAT receipts, landing over 8 per cent ahead of the same period pre-Covid.”
“While September saw income tax fall slightly behind forecast, the figures remain strong and up 15 per cent on the same period pre-Covid. Again, with unemployment continuing to fall, it’s difficult to see anything other than further increases in income tax receipts in the coming months,” Mr Vale said.
“Corporate tax figures again impressed, with the figures year-to-date ahead of what was a very strong 2020. It’s clear that strong results from a number of larger companies, mainly in the technology sector, are driving corporate tax receipts. If the position is replicated in the key month of November, there will be a large corporate tax surplus by year-end,” he said.