Economy

Huge €6.3bn exchequer surplus gives Government more than expected for Budget

Ministers Paschal Donohoe and Michael McGrath are going into their Budget announcement this month with dramatically more money to spend than they expected.

he latest Exchequer figures to the end of August show the Government is already running a large surplus of €6.3bn.

That represents a €13bn improvement from this time last year and gives the ministers significant funds to deploy to deal with the cost of living crisis.

Consistently strong corporation, income and value-added tax (VAT) receipts in the year to date have put the public finances in rude health compared to the deep pandemic deficits of the last two years.

But the unwinding of Covid-19 supports and the re-opening of the economy this year have led to significantly lower expenditure and a surge in commercial activity, filling the State coffers.

The robust out-turn in the tax take just before such an important Budget will surely heap pressure on Mr Donohoe and Mr McGrath to open the taps.

With regular increases in the price of energy eating into both household and business budgets, the Government may be forced to contemplate a bigger package than the €6.7bn pledged in the Summer Economic Statement just two months ago.

Department of Finance figures show tax revenue to the end of August was up 26.3pc over last year at €49.8bn.

Last month alone, €6.4bn in taxes were collected – nearly a third more than August 2021 – mainly driven by a bumper haul of corporation taxes once again.

Adding in non-tax sources of income, total Exchequer revenue now stands at €66.1bn for the year versus total expenditure of €59.8bn.

Some of the strong tax take is due to the so-called base effect, whereby comparisons to last year’s lockdown economy flatter this year’s receipts.

VAT, for instance, has skyrocketed by 24pc this year largely because of weak numbers in 2021.

But income taxes, which are stickier, have also rebounded strongly, while corporation taxes are the highest they have ever been.

Income tax receipts stand at €19.2bn, which is 16pc ahead of the same period in 2021. Corporation taxes are at €11.8bn, or about two-thirds higher than last year.

While welcome, the windfall in corporation taxes has prompted concern that the State is too reliant on income from a small handful of large multinationals.

An analysis published by the Department of Finance on Thursday showed that employees of multination firms account for about 33pc of income taxes. Combined with the corporation tax they contribute, multinationals account for circa 40pc of all tax revenue from these two categories alone.

“This has clearly been a tailwind in recent years, but it is highly concentrated and vulnerable to turnaround in corporate profitability,” said Goodbody chief economist Dermot O’Leary.

Multinational companies were a key driver of strong economic growth in the second quarter, according to national accounts published by the Central Statistics Office.

GDP grew 1.8pc between April and June, or 11pc versus the same period last year. Modified domestic demand, considered a more accurate measure of the economy, grew 4.3pc in the quarter and 11pc in the year.

According to Goodbody, 85pc of the growth in the economy since 2019 has come from the ICT and manufacturing sectors, which are dominated in Ireland by a few major tech firms, pharmaceutical companies and medical devices.

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