Better-than-expected income tax and VAT receipts bolster public finances

The Government's finances have been boosted by a stronger-than-expected rebound in income tax and VAT receipts linked to a rapid recovery in employment and consumption alongside another surge in corporation tax payments.

The latest exchequer returns show the Government collected €50.9 billion in tax over the first 10 months of the year to the end of October, €3.8 billion or 8 per cent more than expected and almost 20 per cent more than last year.

The strong performance was driven by income tax receipts, which generated €20.6 billion (€484 million above profile).

The Government’s main tax head brought in €2.2 billion in October, €330 million – or more than 17 per cent – higher than profile and €640 million more than in the same month last year.

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The strength of income tax was linked to the recovery in the State’s labour market, which saw unemployment fall to 10 per cent in September, its lowest level since the start of the pandemic.

Jobless figures for October, which are expected to show a further decline, are due out today.

Sales tax

VAT receipts have netted the exchequer €12.6 billion so far this year, €785 million above what was projected initially, and most of it since the lifting of restrictions in May.

The sales tax is the strongest indicator of consumer activity and tallies with other data pointing to a pick-up in retail sales.

The tax haul was also boosted by the continued strong performance of corporation tax, which generated €9.5 billion for the 10-month period, €2 billion above profile.

On a 12-month rolling basis, the exchequer recorded a deficit of €8 billion in October.

On the spending side, total expenditure to the end of October amounted to €67.5 billion. This was almost €2.4 billion or 3.5 per cent below profile as a result of an “underspend” across several departments.

“The underspend vis-a-vis profile is the result of a number of factors including the closure of construction sites earlier in the year,” the department said.

Minister for Public Expenditure Michael McGrath said that 82 per cent of expenditure, some €51.1 billion, related to spending in the departments of education, social protection, health, and further and higher education, research, innovation and science.

“This reflects the Government’s continued focus on protecting the most vulnerable in society and prioritising core social services against the impacts of Covid-19,” he said.

The figures suggest the Government is on course for another record tax haul in 2021. Peter Vale, tax partner at Grant Thornton Ireland, said the exchequer data provided "more good news for the Government".

“Income tax figures remain very strong and significantly ahead of the periods immediately pre-Covid, further evidencing the strong earnings in many sectors,” he said.

“Importantly, the robust income tax returns look sustainable, with a significant surplus over forecast now expected for the full year,” he said.

Mr Vale said the VAT figures were being fuelled by stronger earnings and resultant spending. “Any fears that the figures reflected a temporary post-Covid spending splurge have been allayed,” he said.