The latest official tax figures provide significant reassurance. After sharp year-on-year declines in the previous three months, corporate tax receipts rose strongly again in November from 2022 levels. Meanwhile, income tax and VAT remained solid. The exchequer targets for 2023 are now likely to be met and the outlook for 2024 looks more promising.
November is the key month for corporation tax payments, with €5 billion of last year’s total of €22.6 billion collected in that month alone. That this November’s figures showed an increase to €6.3 billion came as a surprise, given the weakness seen in recent months. In hindsight, it is now clear that the earlier figures were influenced by factors in a couple of companies. Elsewhere, corporate tax revenue continues to roll in.
The figures will lead to much relief in Government, as a fall-off in corporation tax would eat away at forecast budget surpluses over the next few years and lower the room for manoeuvre in managing the public finances.
All that said, the trends in recent months do underline the point made repeatedly by Minister for Finance Michael McGrath and his predecessor and now Minister for Public Expenditure, Paschal Donohoe, that corporation tax receipts remain vulnerable to the fortunes of a small number of sectors and a few companies within them. They are also reliant on the tax planning structures used by these companies, which can change over a relatively short period.
Cop29: Can a bloated and cumbersome process undermined by self-interest deliver for our planet?
The Disappeared: ‘If you think there are straightforward heroes and villains then you are not thinking hard enough’
A Syrian refugee (3) died in Lebanon before she could come to Ireland. Her father says Irish authorities are partly to blame
No Magic Pill: ‘If you cast disabled actors, they bring with their performance the lived experience of disability’
While the latest figures are significantly better than anticipated, they still suggest that the era of sharp year-on-year increases in the corporation tax take may be coming to an end. With significant pressures on spending, budgetary decisions are still likely to get more difficult. Already there are clear signs that the health budget for 2024 will inevitably increase and that pressure will remain to repeat at least some of the measures counted in the budget as temporary. And the Fiscal Advisory Council and the Department of Finance have warned about longer-term pressures on spending due to population ageing and the climate transition.
The public finances current strong position gives opportunities to plan for all this. The establishment of two funds to put money away for the future is welcome, but controlling spending remains a big challenge.
One lesson of recent months is that Ireland needs to continue to plan for volatility in the key area of corporate tax revenues. The latest figures give some confidence about the outlook for this key tax heading, but the corporate tax take remains heavily reliant on three or four big multinational companies.
The outturn for 2023 gives some reasons for confidence, but significant risks remain.