The latest exchequer figures reflect a solid year for the public finances, with a late surge in corporation tax pushing the exchequer into surplus. But slowing growth in this key tax heading – and also for income tax – need to be noted and will have implications for the years ahead. It may be that after a few years of strong growth, the rate of increase in tax revenues is returning to more normal levels.
Corporation tax has driven a lot of the tax buoyancy of recent years and after a strong November, the December figures were again encouragingly ahead of the same month last year. This meant that corporation tax receipts for the year at €23.8 billion were €1.2 billion up on 2022 . It is important to note that the rate of growth in corporation tax is moderating sharply; the years of the annual target being exceeded by massive amounts may be behind us.
Income taxes also performed well, but the rate of growth here slowed as the year went on. This is in line with other data showing another strong year for the jobs market, but total employment appearing to top out as the year went on. Overall tax receipts for the year were up 6 per cent. Total voted spending grew by close to 7 per cent, meanwhile, driven in part by a large rise in State investment.
The figures will be welcome news to budget ministers Michael McGrath and Paschal Donohoe, particularly after wobbles in corporation tax in earlier months had raised some fears and against a weak international economic backdrop. But both will know that the relentless rise in State spending and the possible moderation in tax growth due to a slowing economy are both evident in the figures. If the Government lasts, difficult decisions lie ahead for next October’s budget.
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The extraordinary growth in corporation tax has allowed Irish politics to largely ignore many of the normal trade-offs in debating budget policy – and particularly the need to raise more taxes to fund a larger State. As the next general election starts to come into view, these issues will again start to come into focus.