Exchequer Returns: Strong tax revenues boost Government’s position ahead of budget

Strong tax revenues, including another spike in corporate tax receipts, have boosted the Government’s financial position ahead of the budget.

Exchequer returns published on Thursday by the Department of Finance show the Government collected €35.2 billion in taxes during the first five months of the year, 6 per cent or €2 billion more than the same period last year.

Worries about a possible fall-off in corporation tax have been alleviated with the May figures showing receipts up strongly year on year.

The business tax, now the second largest source of income for the Government, generated €3.6 billion in May, which was 30 per cent or €836 million up on the same month last year.

“On a cumulative basis, corporate tax receipts of €6.3 billion have recovered after a sharp decline in the first quarter of the year and are now broadly flat on the same period last year,” the department said.

Income tax, meanwhile, generated just under €13.9 billion cumulatively for the year so far, which was 6.7 per cent higher than in the same period last year. Strong income tax receipts are reflective of a strong labour market. VAT receipts, an indicator of consumer spending, were also in advance of target for the year, generating €10.8 billion, €800 million (8 per cent) higher than in the same period last year.

Commenting on the figures, Minister for Finance, Michael McGrath said: “May is an important month for tax revenues in the exchequer calendar and the positive performance is a welcome indicator of the strength of our economy, most clearly reflected in the healthy growth in income tax and VAT revenues.”

“With a record 2.71 million now at work in Ireland and incomes rising faster than the rate of inflation, living standards are improving again and consumer activity in our economy is being supported,” he said.

“Of course, the most notable feature of the May tax outturn is the spike in corporation tax receipts. As a result, overall corporate tax revenues have recovered after a sharp drop in the first quarter of the year and are now level with the same period last year,” Mr McGrath said.

However he cautioned “that the significant volatility, in both directions, we have seen from month-to-month in this revenue stream is yet more evidence of the unreliability of these highly concentrated receipts, and the associated risks this brings to our public finances”.

The latest figures gave rise to an exchequer surplus of €0.8 billion, compared to a deficit of €0.6 billion in the same period last year, an improvement of €1.4 billion. On a 12-month rolling basis, the exchequer recorded a surplus of €2.6 billion, the department said.

On the spending side, gross voted expenditure stood at €38.8 billion for the five-month period, which was €5 billion ahead of the same period last year.

“Current expenditure figures reflect measures introduced in Budget 2024, including social protection rate increases and the improvement of public services as we support our growing population,” Minister for Public Expenditure Paschal Donohoe said.

Tom Woods, head of tax at KPMG, said the strong return of corporation tax receipts in May “indicates that the profits of some large companies are up on last year”.

Peter Vale, tax partner at Grant Thornton Ireland, said: “As the May returns will predominantly reflect full year 2024 profit estimates, this augurs well for returns later in the year.”

“However a key caveat with any prediction of corporation tax receipts is the uncertainty caused by our reliance on such a small cohort of companies,” he said.