Buoyant tax revenues have boosted the Government’s financial position ahead of the budget, placing further political pressure on the Coalition to announce a big cost-of-living package.
The latest monthly exchequer returns, published by the Department of Finance, show tax revenue for the seven-month period to the end of July stood just under €48 billion.
This was €4.3 billion or 10 per cent ahead of the same period last year and represented the highest tax take for the first seven months of any year.
While Ministers have agreed to limit the core budget package of spending and tax measures on October 10th to €6.4 billion, the figure does not include any one-off measures that Minister for Finance Michael McGrath said he would announce based on “the cost of living” at the time of the budget.
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The strong exchequer numbers were driven by continued growth in corporation tax, income tax and VAT.
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On a cumulative basis, corporation tax generated €10.9 billion for the seven-month period, €1.9 billion (20.7 per cent) higher than in the same period last year. Receipts from the business tax are expected to hit a record €24 billion-€26 billion this year.
Income tax brought in €18.2 billion, 8.8 per cent up on the same period last year, reflecting the strength of the labour market, which is now considered to be at full employment.
The Government’s other big tax channel, VAT, generated €13.2 billion over the seven-month period, €1.4 billion (11.5 per cent) higher than in the same period last year.
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Tax receipts from the sales tax remain strong despite the squeeze on household budgets. Inflation is the main driver, with consumers spending more to buy the same amount of goods as this time last year.
Overall, the exchequer generated a surplus of €700 million for the period. This compares with a surplus of €5 billion for the same period last year. The department said the difference was driven by the transfer of €4 billion to the National Reserve Fund in February this year.
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Mr McGrath has signalled he plans to put a significant portion of excess corporation tax receipts into two new funds – a public investment fund and a sovereign wealth fund – which he plans to establish later this year.
The first will be used for capital spending on vital infrastructure while the other will be kept as a buffer against future economic shocks and could potentially fund age-related costs in the future.
The Government is expected to generate a cumulative budgetary surplus of €65 billion over the next four years primarily as a result of record corporation tax receipts.
Peter Vale, tax partner at Grant Thornton Ireland, said: “Overall, the exchequer remains on track for a large year-end surplus, with the possibility of a significant tax package in October’s budget.”
Tom Woods of KPMG said: “Clearly, this sustained performance gives the Government options for the upcoming budget such as investing in personal tax reform to improve Ireland’s proposition as a location for global talent and to help mitigate the cost of job creation for SMEs.”
