The Government generated a surprise budget surplus of nearly €1 billion in February on the back of strong income tax and VAT receipts linked to the reopening of the economy and the ongoing recovery in employment.
This compares to a deficit of €700 million recorded this time last year, and corresponds to a year-on-year improvement of €1.7 billion.
A quicker-than-expected rebound in consumer spending and employment have boosted Government tax receipts and helped repair the Covid-depleted public finances.
The latest exchequer returns, published by the Department of Finance, show the Government collected just over €10 billion in taxes during the first two months of 2022.
This was 20 per cent or €1.7 billion up on the total collected during the first two months of last year, and comes on the back of a record €68 billion tax haul in 2021.
However, the department cautioned that the early months of 2021 were distorted by a number of factors, “flattering the year-on-year comparison”.
When compared to the same period in 2020, a less distorted base, receipts were up by €900 million or 10 per cent.
Cumulatively, income tax generated €4.7 billion, 17 per cent more than the same period last year, reflecting the ongoing recovery in employment.
VAT
The exchequer data also shows VAT – traditionally a proxy for consumer spending – generated €3.4 billion during the first two months of the year, 27 per cent more than the same period last year.
Receipts in 2021 were, however, hit by the temporary reduction in the standard rate of VAT, along with the introduction of stringent public health restrictions, again flattering the year-on-year comparison.
February is not typically a significant month for corporation tax, and receipts of just €219 million were collected, €73 million below the February 2021 total.
On the spending side, gross voted expenditure stood at €11.6 billion, which was €800 million below the same period in 2021.
This gave rise to an exchequer surplus of €900 million. On a 12-month rolling basis, a more appropriate measure of the exchequer balance, the exchequer recorded a deficit of €5.7 billion.
Minister for Finance Paschal Donohoe said the figures show that tax receipts continued to record strong growth in the opening months of the year.
“While the annual comparisons are flattered due to a number of factors, the underlying trends are a good signal of the continued momentum in the domestic economy,” he said.
“The strong income tax performance reflects the ongoing recovery in the labour market, alongside continued wage increases in sectors less affected by the pandemic, while the significant increase in VAT receipts is driven by the rebound in consumer spending.”
Spending
Minister for Public Expenditure and Reform Michael McGrath said education, health and social protection made up 85 per cent of the spending, demonstrating the Government’s strong commitment to these areas.
Peter Vale, tax partner at Grant Thornton Ireland, said the latest exchequer figures continue “the positive trend witnessed throughout 2021”.
“Whether the positive tax receipts result in tax reductions later in the year remains to be seen. In summary, another good month for exchequer and nothing at the moment to suggest any deviation from this trend.”
