Donohoe warns of corporate tax over-reliance as receipts continue to outperform

Ireland’s deficit for the first nine months of this year was €9.4bn, largely due to the extra €10.5bn spent to date combating the economic impact of the Covid pandemic.

Finance Minister Paschal Donohoe has warned that Ireland cannot continue to rely disproportionately on corporation tax to fund the economy.

He was speaking as key exchequer figures showed that the Government continued to take in more tax revenue than expected in September, which should allow for more aid for the worst hit sectors of the economy in this month’s budget.

Mr Donohoe previously said that the September tax numbers - which cover three quarters of the year - would go a long way to framing the upcoming budget.

Over the course of the first nine months of the year the Government collected nearly €39.6bn in taxes. Despite the heavy impact of Covid-19 on the economy, this was down by just €1.2bn, or 3%, year-on-year. 

The performance, however, was heavily helped by strong tax performances in January and February – before the pandemic took hold – and continued solid corporate tax receipts, which have compensated for sharp declines in areas like Vat.

Mr Donohoe warned that scenario cannot be relied on continuing forever.

“Although receipts are better than previously expected, much of the over-performance relates to corporation taxes – a revenue stream we cannot rely on over the medium term,” he said.

Ireland’s deficit for the first nine months of this year was €9.4bn, largely due to the extra €10.5bn spent to date combating the economic impact of the Covid pandemic.

“We have invested in our health service, protected incomes and supported business throughout this crisis. Budget 2021 will continue to use appropriate policies to direct resources at those who need it most,” Mr Donohoe said.

While the third quarter of the year is traditionally not a significant time for corporation tax, receipts were still €1.63bn ahead, year-on-year, as of the end of September. Conversely, Vat receipts were down €2.4bn year-on-year due to the Covid-related fall in consumer spending. Income tax receipts were down 2.1%, year-on-year.

"The dip in September income tax figures comes after several positive months. This may simply be a blip or it may represent something more fundamental,” said Peter Vale, tax partner at Grant Thornton Ireland.

Mr Vale said with the corporation tax surplus effectively propping up weaknesses in other categories, “it is critical that the surplus is maintained, with November the key payment month for many companies.”

Mr Vale said the latest exchequer figures indicate a “remarkably resilient” economy, but are unlikely to “move the dial” in terms of budget decisions on Tuesday week.

“While significant tax changes are not expected, there is much debate as to whether capital taxes may be reduced. While this may be politically challenging, in our view it would help stimulate activity in the market and help ensure capital assets are at their most productive,” he said.

Last month, when delivering the exchequer figures up to the end of August, Mr Donohoe warned that a “considerable and unprecedented” amount of economic uncertainty still remains.