Corporation tax receipts fell sharply in August, down €1 billion on the same month last year, raising fears about the volatility of this key source of revenue to the exchequer. Minister for Finance, Michael McGrath warned that the figures are a reminder of the " underlying vulnerabilities that still remain in our public finances.”
The drop meant that total taxes collected under all headings during August of €5,3 billion were 16 per cent down on the same month last year. However, there had been a surprise boost in corporation tax in August last year, so it is unclear whether the latest figures are a cause for concern in the months ahead.
However, Peter Vale, tax partner at Grant Thornton, warned that the figures were “ surprisingly poor” and indicated that “the risk of weaker corporation tax receipts in the key month of November increases. Poor November figures could erode much of the planned Budget surplus.”
According to Tom Woods, head of tax at KPMG, the exceptional performance of corporation tax in August of last year means " it is too early to conclude whether the drop of €1 billion for August 2023 represents a downward trend.”
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The latest figures will feed into the negotiations on the October budget, providing a warning to ministers on the uncertainties of the tax outlook. McGrath warned yesterday that the correct balance must be struck between improving public services and maintaining a sustainable outlook for the public finances.
The Government has already set aside cash from corporation tax, putting €6 billion in revenues to a National Reserve Fund and is planning to also establish a longer-term investment fund.
Corporation tax growth has been a key support to the exchequer in recent years, though the Department of Finance has consistently said that much of the increase cannot be relied upon as it does not directly relate to economic activity undertaken in Ireland and was thus windfall in nature.
[ Blip in exchequer returns means trends will be closely watchedOpens in new window ]
It warned that the latest figures, which showed a decline greater than officials had anticipated to a monthly corporation tax payment of €1.7 billion, underline that this source of revenue is potentially subject to " exceptional volatility.”
Corporation tax had taken a surprise jump in August last year, when it was €1.7 billion above the same month in 2021, apparently due to early tax payments by one or two significant players, so this affects the annual comparison.
The payments for the next few months will now be closely watched to see whether the August figure this year was just a once-off. For the year to date, corporation tax payments of €12.7 billion are still running 7.3 per cent ahead of the first eight months of 2022.
Overall the exchequer recorded a small deficit of €0.3 billion in the first eight months of the year, compared to a surplus of €6.3 billion in the same period last year.
Some €4 billion of the difference relates to money paid into the National Reserve Fund earlier this year, while the fall in corporation tax last month is also a factor. With significant tax payments due in the Autumn, an exchequer surplus is still anticipated for the year as a whole, but the outlook is now somewhat clouded by the corporation tax uncertainties.
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Tax receipts of €53.1 billion were collected to the end of August, up 6.6 per cent on the same period last year. The annual rate of tax revenue growth has been slowing – it was nearly 11 per cent in June.
This is due not only to corporation tax but also income tax. These were running a healthy 3.8 per cent ahead for the month of August, but this is down on earlier months.
For the year to date, income tax is 8.2 per cent ahead. Capital gains and capital acquisition taxes and stamp duty are all down on last year.
[ Strong exchequer numbers likely to increase clamour for tax cutsOpens in new window ]
Government spending continues to grow strongly. Total voted expenditure to end-August amounted to €56.4 billion, up 9.5 per cent on the same months last year.
Strong spending growth has been made possible by significant buoyancy in tax revenues, which have also allowed the exchequer to move into surplus.
