SUMMER ECONOMIC STATEMENT AND MID-YEAR EXCHEQUER RETURNS
Strong Income tax, VAT and Corporation tax pave the way for another relatively expansionary budget on 10th October
An Exchequer surplus of €258 million was recorded in the first half of the year. This compares with a surplus of €4.2 billion in the same period last year, with the reduction in the surplus due to the transfer of €4 billion to the National Reserve Fund (NRF) in February this year.
Tax revenue buoyancy continued to characterise the public finances in the first half of the year. Tax receipts totalling €40.9 billion were collected to end-June, ahead of the same period last year by €4 billion or 10.9 per cent. This was driven primarily by strong growth in income tax, VAT, and corporation tax. This is consistent with the trend of recent years.
· Income tax totalled €15.5 billion, which is €1.3 billion, or 8.9 per cent higher than the first half of 2022. The strong income tax take reflects the ongoing growth in employment, much of it high-quality employment, which benefits income tax revenues due to the very progressive nature of the income tax system.
· Corporation tax totalled €10.5 billion, which is €1.8 billion, or 20.1 per cent higher than the first half of 2022. The corporation tax take in June was €692 million or 19.3 per cent higher than June 2022. There are still no signs of the corporation tax buoyancy running out of steam.
· VAT totalled €10.3 billion, which is €1.2 billion, or 13.5 per cent higher than the first half of 2022. Strong VAT receipts reflect strong consumer spending, with new car registrations 18.8 per cent ahead of the first half of 2022.
· Other smaller tax headings such as Stamp Duties, CGT, CAT and Customs are all running well behind last year.
In the first half of the year, Income tax accounted for 37.9 per cent of total tax revenues; Corporation tax accounted for 25.8 per cent of total tax revenues; and VAT accounted for 25.2 per cent of total tax revenues.
All in all, the Exchequer returns are consistent with indicators such as the labour market, business investment and consumer spending. The exchequer is set to deliver another strong surplus for the full year, which the Department of Finance is now projecting at close €12 billion, which is the amount it regards as ‘windfall’ corporation tax receipts.
The Summer Economic Statement was also published today, which sets out the budgetary parameters for Budget 2024, which will be delivered on October 10th.
The ongoing growth in the economy and the buoyancy of tax revenues evident in the mid-year Exchequer returns set a comfortable background for what will be in theory the second last budget ahead of the next general election. Given the nature of coalition governments in their final months, it could well be the case that the offering on October 10th could be the last one before an election.
Budget 2024 is now being framed against a background of an economy that is operating at, or even beyond, its maximum sustainable capacity. The upcoming budget will therefore have to achieve a balance between the desire to provide additional public services and support living standards in an economy where some are struggling, and on the other hand avoiding stoking excess demand and more intense inflationary pressures in an already high-inflation economy.
Consequently, the Minister for Finance has committed to increase core public spending by 6.1 per cent in 2024, bringing it up to €91.2 billion. This is ahead of the mandated target of 5 per cent growth, but the political economy at play here has to be recognised. Non-core expenditure decisions will be announced on budget day.
On the taxation side, a package of €1.1 billion is being provided, with the emphasis on shielding workers from a higher taxation burden due to inflation. In essence, this means the focus will be on the indexation of the various tax bands and allowances.
Despite what some are likely to suggest, this proposed budgetary strategy is quite prudent in the political circumstances and there is a heavy bias on expenditure increases rather than taxation reductions. This government should be judged by its actions and could not remotely be described as a right-wing government, which those on the left are delighted to claim. The growth in government spending during the lifetime of this government is not exactly consistent with right-wing economic ideology.
Good to see tax receipts still growing
I’m hearing rumours that a lot of big housing developments are completing their current phase & no more!
The premise being that house prices will fall!
Any wise (or indeed unwise) thoughts?