EXCHEQUER RETURNS END-SEPTEMBER 2023

Corporation tax receipts losing momentum at an unfortunate time for Government.

The last set of Exchequer returns ahead of Budget 2024 should give cause for caution. The corporation tax situation has weakened over the past two months and this tax heading is finally starting to look somewhat vulnerable and quite volatile. This suggests that a cautious approach to the public finances and fiscal policy is now warranted. This uncertainty has not come at a good time for government as it prepares to deliver what is still likely to be an expansionary and high spending budget.

In the first nine months of the year, the Exchequer ran a surplus of €1.1 billion. This compares with a surplus of €7.9 billion in the same period last year. There was a transfer of €4 billion to the National Reserve Fund (NRF) in February this year, which has the effect of reducing the recorded surplus this year.

Tax receipts of €61.4 billion were collected to end-September, ahead of the same period last year by €3.5 billion or 6.6 per cent, driven primarily by growth in income tax, VAT, and corporation tax.

In the first nine months of the year, income tax receipts totalled €23.1 billion, which was €1.8 billion or 8.2 per cent higher than the same period in 2022. This reflects the ongoing strength of employment and growth in wages.

The VAT take was up by €1.5 billion, or 9.7 percent. This reflects the ongoing strength of consumer spending. New car registrations in the first nine months of the year were 16.5 per cent higher than in the first nine months of 2022.   

The main area of concern in the Exchequer finances is the sharp slowdown in corporation tax receipts over the past two months. In the first nine months of the year, corporation tax receipts totalled €14.4 billion, which is €612 million or 4.4 per cent ahead of last year. However, corporation tax receipts in September were €252 million or 12.4 per cent lower than last year. In the two-month period August and September, corporation tax receipts totalled €3.6 billion, which is 26.1 per cent or €1.3 billion lower than the equivalent two-month period in 2022. While it is still too early to jump to any conclusions based on two month’s data, the performance of ICT and Pharmaceutical companies will need to be monitored closely. In the first nine months of the year, corporation tax is €0.7 billion behind what the Department of Finance had budgeted for.

Gross voted current government expenditure in the first nine months of the year at €58.5 billion was €3.9 billion or 7.1 per cent higher than the equivalent period last year.  It was €1 billion ahead of what the Department had budgeted for.

In Budget 2024 on October 10^th, Government must be careful about spending aggressively on the back of a corporation tax base that is starting to lose momentum.