Record tax receipts have bolstered the Government’s financial position ahead of the budget. Big increases in corporate tax, VAT and income tax drove tax revenue – for the seven months to the end of July – to €43.5 billion, the latest exchequer returns show.
This is the highest tax-take for the first seven months of any year, and it was 23 per cent, or €8.2 billion higher, than in the same period last year.
The stronger-than-expected performance comes despite the surge in inflation, now running at over 9 per cent, which is likely to erode the living standards of most Irish households this year.
The Government admitted that some of the additional receipts from VAT and excise duty were the result of higher prices generally.
The latest figures show the exchequer generated a surplus of €5 billion in the seven months to July, compared to a deficit of €5.7 billion this time last year, an improvement of €10.7 billion, potentially giving the Government more financial firepower for cost-of-living measures in the budget.
The tax haul was boosted by record corporation tax receipts, which generated €9 billion for the seven-month period, more than €3 billion ahead of the same period last year.
The strong performance was driven by “significant increases in profitability in the multinational sector”, the Department of Finance said.
VAT generated almost €12 billion, an increase of €2.2 billion, or 23 per cent, on the same period in 2021.
However, the department cautioned that there was a significant “base effect” in the cumulative VAT figures “as the economy was still in lockdown through much of the same tax period in 2021, depressing VAT receipts and flattering the comparison”.
It also noted a “significant deceleration in growth” in sales tax receipts in July, reflecting, in part, the fading of these “base effects”. Officials are also warning that inflation and higher living costs are likely to negatively impact VAT receipts later in the year.
The Government’s other main tax head, income tax, also performed strongly, reflecting improvements in the labour market. On a cumulative basis, income tax receipts stood at €16.7 billion at the end of July, which is over €2.4 billion, or almost 17 per cent, ahead of the same period in 2021. The latest unemployment numbers will be published on Thursday.
On the spending side, total expenditure to the end of July was €53.2 billion. Of this, gross voted expenditure stood at €45.3 billion, which was €1.8 billion below the same period in 2021, helped by reduced expenditure on Covid-related supports, which have now been phased out.
“Despite the relatively negative global economic outlook, the latest exchequer returns demonstrate the ongoing resilience of the Irish economy,” Peter Vale, tax partner at Grant Thornton Ireland, said.
However, he warned the increase in interest rates announced in July will reduce disposable income for many and may further impact spending and VAT receipts later in the year. Mr Vale also highlighted the resilience of corporate tax receipts.
“While July is a quiet month for corporation tax receipts, the figures for June were surprisingly good. They provide some comfort that receipts later in the year will hold up, despite the economic uncertainty and some mixed earnings updates from technology giants in particular,” Mr Vale said.
Tom Woods, partner and head of tax in KPMG, said “while inflation is a factor in tax receipts this year, there is no evidence yet of the global slowdown impacting Irish VAT receipts which is the typical barometer of changes in consumer spending”.