BY JOHN ELLIS, FINANCIAL ADVISOR
The recent release of Exchequer figures for the period ending October paints a multi-facet picture of Ireland’s economic landscape. While overall tax revenues have grown, there are concerns about the third consecutive monthly decline in corporation tax receipts.
The figures reveal that tax revenues for the first 10 months of the year reached €66.5 billion, marking a significant €2.5 billion (4%) increase compared to the same period in the previous year. This growth is primarily driven by healthy income tax and VAT receipts, which, together, offset the decline in corporation tax.
Income tax receipts reached €25.7 billion by the end of October, demonstrating steady growth of €1.8 billion (7.6%) from the previous year. This increase is attributed to the strength of employment, reflecting a healthy job market. October, however, saw a more modest annual growth of 2.4%.
VAT receipts amounted to €17.0 billion, registering a €1.6 billion (10%) increase compared to 2022 with October, despite not being a VAT-due month, contributed €0.2 billion to this total.
But corporation tax receipts saw a decline for the third consecutive month in October. The monthly figures were €1.0 billion (45%) below the same month last year, contributing to a year-to-date decrease of €0.4 billion (2.7%). This decline is associated with declining exports, particularly in the pharmaceutical sector. Other contributing factors include increased public expenditure, reduced non-tax revenue, and a €4 billion transfer to the National Reserve Fund earlier in the year.
These figures give timely reminders of the importance of not making “permanent monetary commitments based on windfall revenues”. Commenting on these figures, Finance Minister Michael McGrath T.D., reiterated the Government’s commitment to maintaining a budgetary surplus and announced the establishment of two long-term investment funds, the Future Ireland Fund and the Infrastructure Climate and Nature Fund, to properly manage temporary windfall corporation tax receipts. (The Future Ireland Fund and the Infrastructure Climate and Nature Fund – will allow the government to invest temporary ‘windfall’ corporation tax receipts to provide resources for known future fiscal challenges and ensure that these receipts do not become part of the permanent expenditure base.)
Minister Paschal Donohoe TD highlighted the Government’s balanced fiscal approach, underscoring the €72 billion invested in 2023. This includes a 30% (€1.6 billion) increase in capital expenditure, indicating progress in the National Development Plan.
Peter Vale, a tax partner at Grant Thornton Ireland, characterised the statistics as “striking,” expressing heightened concern about the timing of this trend preceding November. The predicted underperformance in corporation tax had been anticipated.
But, according to Tom Woods, Head of Tax at KPMG, the October decline seems more substantial than initially foreseen in figures released just last month. “The indications suggest a more significant decrease in anticipated receipts than even the adjusted projections had estimated,” said Mr Woods.
As the Government navigates the complexities of the economic challenges and global uncertainties, the commitment to prudent fiscal management remains a key priority for the year ahead.
The establishment of investment funds and ongoing collaboration with officials underscore a proactive approach to safeguarding Ireland’s economic resilience.
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