A surprise €800 million surge in corporation tax receipts last month has placed the Government in a stronger position financially ahead of the upcoming budget.
The latest exchequer returns from the Department of Finance show the business tax generated €1.04 billion in August, 323 per cent, or €797 million, more than expected. August is typically a quiet month for corporation tax.
The department said the “over-performance was due to higher than projected payments from a number of large firms, mostly in the ICT sector, which may reflect increased sales arising from the pandemic”.
Corporation tax, which is threatened by incoming changes to the global tax system, has generated €7 billion so far this year, €859 million more than expected at the start of the year.
Cumulatively, the Government collected €39.4 billion in tax during the first eight months of the year, which was €2 billion, or 5.4 per cent, ahead of profile.
The total was also 15 per cent up on last year but the department cautioned that year-on-year comparisons were of limited value given “the timing of various periods of restrictions last year and the unprecedented nature of the impact of the pandemic”.
Income tax
The strong performance was driven by continuing strength in income tax receipts, which generated €16.5 billion for the period, as well as a significant recovery in VAT receipts, which brought in €9.8 billion, 6 per cent above profile.
Healthier VAT receipts reflect the reopening of the economy in recent months and the pick-up in consumer spending.
The Government’s headline budget deficit – on a rolling 12-month basis – was €9.5 billion in August, reflecting ongoing expenditure on pandemic-related supports.
Commenting on the figures, Minister for Finance Paschal Donohoe said corporation tax receipts in August “were unusually high, illustrating the inherent unpredictability and volatility of this revenue stream”.
“As I have said many times, we cannot rely on such receipts over the medium- to long-term,” he said.
“The best form of defence against the potential reduction in corporation tax is to reduce the deficit,” Mr Donohoe said, noting Budget 2022 would chart a credible path towards fiscal sustainability while allowing continued investment in our public services, particularly in capital infrastructure.
The figures show spending for the eight-month period amounted to €53.4 billion, which was 3 per cent below profile but 2.6 per cent higher than the same period in 2020.
Minister for Public Expenditure Michael McGrath said current expenditure for the year was €49.7 billion with 68 per cent relating to spending on social protection and health.
“This level of spending reflects the significant resources allocated by Government to ensure that our health service has been able to respond effectively to the impacts of Covid-19, and has ensured that the necessary income and employment supports for our workers and businesses impacted by Covid-19 have been available,” he said.
