Ireland

McGrath: Slowdown in corporation tax shows ‘need to be careful’ before Budget

Minister for Public Expenditure Paschal Donohoe and Minister for Finance Michael McGrath discuss Exchequer returns for September at the Department of Finance (Cillian Sherlock/PA)
Minister for Public Expenditure Paschal Donohoe and Minister for Finance Michael McGrath discuss Exchequer returns for September at the Department of Finance (Cillian Sherlock/PA) Minister for Public Expenditure Paschal Donohoe and Minister for Finance Michael McGrath discuss Exchequer returns for September at the Department of Finance (Cillian Sherlock/PA)

Corporation tax receipts for the third quarter of the year are down by 16% when compared to the same period in 2022, the latest Exchequer figures show.

While corporation tax to end-September was still up on last year by almost 4.5% to 14.4 billion euro, the September returns represented the second consecutive month in which corporate tax declined year on year.

As a result, corporation tax receipts in the quarter were down on profile by 700 million euro, or 16%.

Corporation tax growth is still growing year-on-year, but at a dramatically slower rate than previous years.

In 2022, corporation tax growth was around 48% on 2021 but is now down to 4.4% year-on-year.

Corporation tax is now not likely to reach the 24.3 billion euro target forecast in the Stability Programme Update in April, but is still likely to be above last year.

The quarter three returns fall short of projections, after quarter two figures were broadly in line with expectations.

Receipts in Q3 as a whole amounted to 20.5 billion euro, down on profile by 900 million euro or 4.4%.

Commenting on the figures at a media briefing at the Department of Finance, Minister Michael McGrath said the returns were a “timely reminder of the need for careful management” of public finances.

He said he had been “sounding the warnings” over the slowdown in growth of corporation tax receipts for quite some time.

The Minister for Finance said: “My department will also publish an updated set of macroeconomic and fiscal projections as part of the current Budget, but it seems likely there would be a levelling-off of growth in corporation tax compared to the extraordinary levels of the last few years.”

He further warned: “In addition to the budget package for next year, given capacity constraints, and the fact that inflation still remains high in comparative terms, there will be a limited amount of space available this year for temporary once-off supports to assist with the cost of living focused, where we can, on the most vulnerable.”

Minister for Public Expenditure Paschal Donohoe said he and Mr McGrath had been making the case for running budget surpluses since 2020.

“We believe that the spending target that we have for next year is still one that is sustainable and still affordable.

“But the change in tax receipts that we are seeing are now just makes the case for ensuring that Budget 2024 is inside the targets that the Government agreed earlier in the year.”

The duo has long warned about the volatility of corporation tax receipts and said this reinforces the Government’s fiscal policy of taking steps to mitigate against exposure to the unpredictability of the income.

Mr McGrath added that overall tax revenue will fall short of the forecast for 2023 of 88.9 billion euro set in April, with further detail to be published in the White Paper on Friday.

The Finance Minister said changes to the projected surplus would have an “impact” on the the amount that can be dedicated to one-off measures in the Budget.

Elsewhere, the Exchequer figures show that tax revenues to end-Q3 amounted to 61.4 billion euro, up by 6% or 3.5 billion euro on last year.

Income tax receipts amounted to 23.1 billion euro to end-Q3, up by over 8% on the same period in 2022.

VAT receipts in the period stood at 16.8 billion euro, up by 1.5 billion euro or almost 10%.

Total gross voted expenditure to end-Q3 amounted to 64.4 billion euro, 5.2 billion euro or 8.7% ahead of the same period last year.

An Exchequer surplus of 1.1 billion euro was recorded to end-Q3, almost 7 billion euro behind the same period last year.