The Government hauled in a record amount of corporation tax revenues in November of €3.1bn that have already made October’s budget estimates out of date.
The latest exchequer figures show corporation tax revenues brought in €748m more than anticipated in the month and €1.4bn more than anticipated for the first 11 months of the year.
Corporation tax receipts have been surging and setting new records in recent years and there is no indication that the exchequer will lose out any time soon despite proposals to reform the global tax treatment of multinationals.
Economists have long warned that the Government has already committed large chunks of the corporate tax bounties on long-term spending programmes that could not be quickly unwound without inflicting great pain.
November’s exchequer figures also showed income tax revenues — the largest of the big four tax sources — brought in over €3.5bn in the month, €151m more than expected. However, Finance Minister Paschal Donohoe said November’s corporation tax revenues would not end up fuelling even more spending.
The Government now projects it will bring in €600m more in overall tax revenues this year than projected in October’s budget, meaning it will post a budget surplus of €1.4bn or 0.4% of GDP.
Mr Donohoe also said he has set a new target to reduce government debt by pegging it to a new measure of economic output that excludes the distorting effects of the multinationals on the national accounts.
However, analysts at Davy said that Mr Donohoe was still being too cautious about the size of the tax revenues and that his debt-reduction targets were not overly ambitious.
“We still think this is too conservative and that the final balance will be closer to €2bn,” the analysts said.
“There is only so much damage to this position that overspending by the Department of Health in December can do,” Davy said.
UCC economist Seamus Coffey who is chair of the Irish Fiscal Advisory Council said November’s corporation tax surge was not wholly unexpected.
Reiterating the council’s warning about the Government committing to long-term spending based on potentially unreliable revenues, he said October’s budget forecasts for 2020 tax revenues will likely be exceeded.
KBC Bank Ireland chief economist said that Mr Donohoe’s new fiscal target “will not be too demanding if the Irish economy avoids a major adverse shock”.
In a speech to the Institute for International and European Affairs, Mr Donohoe said he accepted that looming global tax reforms would affect Irish exchequer revenues.
He noted the debates in the UK election campaign and in the eurozone over loosening fiscal spending rules. However, he said that he “would caution against diluting the principles upon which they are based”.