Booming tax receipts generated an exchequer surplus of €1.4 billion in May, according to the latest exchequer returns from the Department of Finance. This compares with a deficit of €6 billion this time last year, a period impacted by Covid-19 restrictions.
Big increases in VAT, corporation tax and income tax drove tax revenue – for the year so far – to €30.1 billion, which was €6.4 billion, or 27 per cent, ahead of the same period last year. The Government’s budgetary position was also aided by a decline in spending linked to the unwinding of Covid-related supports, the department said.
The Government’s employment wage subsidy scheme (EWSS) for Covid-impacted businesses ended this week, while the pandemic unemployment payment (PUP) for affected workers was phased out in March.
Income tax receipts for the five months to the end of May generated €11.9 billion, 17 per cent up on the same period last year, reflecting a strong recovery in the State’s labour market. Separate figures this week put unemployment at a pandemic low of 4.7 per cent, on a par with the pre-pandemic rate.
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VAT receipts netted the exchequer €8.9 billion, 29 per cent up on the same period last year. The sales tax is the strongest indicator of consumer activity and tallies with other data pointing to a pick-up in retail sales. Higher inflation and squeezed real incomes are likely to dampen consumption growth in the coming months, however.
The tax haul was also boosted by the continued strong performance of corporation tax, which generated €5.2 billion for the five-month period, 77 per cent up on last year’s total for the same months, suggesting the exchequer is headed for another business tax windfall. Corporation tax receipts amounted to €2.9 billion in May alone, which the department linked to “increased profitability in the multinational sector”.
The strong tax receipts resulted in an exchequer surplus of €1.4 billion in May. However, on a 12-month rolling basis, a better indicator of the trend, the department said exchequer accounts were broadly in balance with a small surplus of €32 million.
On the spending side, total expenditure to the end of May amounted to €31.8 billion, which was 4 per cent or €1.2 billion below the same period in 2021. Health was almost €9 billion, reflecting the prevalence of Covid during the earlier part of the year.
“Today’s figures show that tax receipts remain robust with strong growth evident in the vast majority of tax heads,” Minister for Finance Paschal Donohoe said. “While the annual comparisons are distorted due to a number of factors, in particular the public-health restrictions that were in place last year, the underlying trends are a good signal of the continued momentum in the domestic economy,” he said.
However, he warned that inflationary pressures would mean less accommodative monetary policy in the coming months. The European Central Bank is expected to start a sequence of interest rate hikes later this year. “What is clear is that the higher our level of public debt, the more severe the implications of any rise in borrowing costs will be,” Mr Donohoe said.
“It is crucial that we use the strong momentum in the public finances to rebuild and reinforce our fiscal buffers so that, in this ever more uncertain world, we retain our ability to swiftly and effectively respond to future shocks,” he said.
Despite the ending of the Government’s main Covid support schemes, Minister for Public Expenditure Michael McGrath said spending pressures relating to Covid, the State’s humanitarian response to the war in Ukraine and the recent cost-of-living measure remain. “While Government cannot fully insulate the economy and society against these external factors, steps have been taken to mitigate their impact,” he said.
Peter Vale, a tax partner at Grant Thornton Ireland, said the figures provided “good news” for the Government, albeit with significant challenges ahead. “Overall, while May was yet another good month for the exchequer, there will be nervousness regarding the impact of a global slowdown on tax receipts for the remainder of the year, in particular corporation tax returns,” he said.
