Corporation tax receipts fell sharply in August, down €1 billion on the same month last year, raising fears about the volatility of this key source of revenue to the exchequer.
Minister for Finance Michael McGrath warned that the figures were a reminder of the “underlying vulnerabilities that still remain in our public finances” as discussions were due to begin in relation to Budget 2024.
Meanwhile, a new report has flagged that incomes for some of the poorest people in the country were in danger of a more pronounced stagnation.
The research published by the Economic and Social Research Institute (ESRI) indicated that incomes for the poorest 10 per cent in the Republic declined in real terms between 2020 and 2021 and stalled for the other two-fifths of the bottom half of the table, reversing roughly a decade of growth for lower and middle-income earners.
A “statistically significant” year-on-year increase in material deprivation was also evident between 2021 and 2022. Some 16.6 per cent of people surveyed indicated they could not afford two or more essential items out of a list of 10 last year compared with 13.3 per cent in 2021.
Mr McGrath warned yesterday that the correct balance must be struck between improving public services and maintaining a sustainable outlook for the public finances.
The latest exchequer figures will feed into the negotiations on the October budget, providing a warning to Ministers on the uncertainties of the tax outlook.
The Government is under increasing pressure to bring in further measures to help with the cost-of-living crisis.
Minister for Further and Higher Education Simon Harris said yesterday that those very issues would be to the “fore of our minds”.
Mr Harris added: “We took a number of measures in the last budget and I would expect that again we will be working on the package to try and support people with the cost of living.”
The Government has already set aside cash from corporation tax, putting €6 billion in revenues into a National Reserve Fund and is planning to also establish a longer-term investment fund.
The corporation tax drop meant that total taxes collected under all headings during August of €5.3 billion was 16 per cent down on the same month last year. However, there had been a surprise boost in corporation tax in August last year, so it is unclear whether the latest figures are a cause for concern in the months ahead.
Peter Vale, a tax partner at Grant Thornton, warned that the figures were “surprisingly poor” and indicated that “the risk of weaker corporation tax receipts in the key month of November increases. Poor November figures could erode much of the planned budget surplus.”
According to Tom Woods, head of tax at KPMG, the exceptional performance of corporation tax in August of last year means “it is too early to conclude whether the drop of €1 billion for August 2023 represents a downward trend”.
Corporation tax growth has been a key support to the exchequer in recent years, though the Department of Finance has consistently said that much of the increase cannot be relied upon as it does not directly relate to economic activity undertaken in Ireland and was thus windfall in nature.
It warned that the latest figures, which showed a decline greater than officials had anticipated to a monthly corporation tax payment of €1.7 billion, underlined that this source of revenue was potentially subject to " exceptional volatility”.
Corporation tax had taken a surprise jump in August last year, when it was €1.7 billion above the same month in 2021, apparently due to early tax payments by one or two significant players, so this affects the annual comparison.
The payments for the next few months will now be closely watched. For the year to date, corporation tax payments of €12.7 billion are still running 7.3 per cent ahead of the first eight months of 2022.
Overall, the exchequer recorded a small deficit of €0.3 billion in the first eight months of the year, compared to a surplus of €6.3 billion in the same period last year.
