It was another bumper year for the exchequer, with €83.1 billion in tax collected according to the end-year exchequer returns, up by an extraordinary 21.5 per cent on the previous year. And while corporation tax again showed the biggest rise, income tax and VAT also chipped in, despite all the problems faced by the economy. New Minister for Finance Michael McGrath will know, however, that nothing can be taken for granted in 2023 and officials will be watching for any signs that the economic slowdown or the wobbles in the tech sector are having an impact.
After huge revenues in November, tax receipts in December of €5.6 billion were actually €500 million lower than in the same month in 2021. Only time will tell if this was a sign of things to come. For now, the main focus is on the extraordinary rise in taxes in 2022, which demonstrates the underlying resilience of the economy. But tax experts say that last year was so good that it will be challenging to repeat in 2023.
“The 2022 receipts were way beyond expectations,” said Feargal O’Rourke, managing partner in PwC, but he added that it would be hard to repeat this level of tax revenue in 2023 given the economic slowdown. At Grant Thornton, tax partner Peter Vale said VAT receipts are likely to be affected by the cost-of-living squeeze and higher mortgage rates. Nonetheless, he said he was “cautiously optimistic” that tax returns this year could match the 2022 figures.
A look ahead to 2023
Corporation taxes rose by close to 50 per cent last year to €22.6 billion and the heading has overtaken VAT as the second biggest source of tax revenue. The exchequer has benefited from the rising profitability of multinationals, their increased presence here and also tax-based restructurings. But the reliance on a small number of companies in a couple of sectors leaves the exchequer vulnerable. For now, the tech sector, one of the big contributors, is under pressure, while the other big player — pharma and medtech — remains buoyant.
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It is sobering to see the Department of Finance’s calculation that excluding what it believes are the “windfall” aspects of corporation tax receipts — the part not explained by economic activity in the State — would mean a general Government surplus of a bit over €5 billion this year turning into a deficit of a similar amount. This potential €10 billion-plus swing shows how the Republic’s public finances are vulnerable to any sharp moves in tax collected. The surplus is the difference between two very big numbers.
Annual warnings that the tax boom, particularly on corporation tax, would come to an end have so far proved unfounded. Whether 2023 is the year when the wolf finally arrives remains to be seen.
