Income taxes play starring role to bolster finances in March, exchequer returns to show

Confidence is building that the Government may not have to borrow further billions — but it also depends on the success of the vaccine rollout and avoiding further waves of Covid

Paschal Donohoe, the finance minister, will be looking for the return of construction to further boost income tax receipts later this year.  Picture: Moya Nolan

Income tax revenues have delivered a further surprising prop to Government finances reeling from the tougher-for-longer level 5 lockdown, the exchequer returns released on Tuesday will show.

The tax-and-spend figures for March will show the receipts the Government collects from income taxes are running ahead of all expectations going into the pandemic over a year ago, as the billions spent on supporting household incomes and expanding public sector jobs during the pandemic has paid off.

Confidence bolstered by income tax receipts

The performance of income tax receipts in March will give strong support to the battered finances and build confidence that the Government will after all not need to borrow many billions more, as long as the delayed vaccines are rolled out in the coming weeks and no new Covid variants emerge to scupper the reopening of the economy.

The March figures will show that other principal sources of tax revenues — Vat and corporation taxes — have had mixed fortunes.

March is a Vat payment month but the latest monthly figures have far less significance for corporation taxes in judging whether multinationals will again deliver bumper tax receipts this year.

Some sectors saw a pandemic boom

Multinationals delivered a surprise €11.8bn in tax revenues to the exchequer last year, as exports and profits for world markets of the pharma and IT facilities based in Ireland boomed during the worst of the Covid-19 crisis.

The Government is now looking to the vaccine rollout programme to enable it to reopen major parts of the shuttered economy after pandemic-linked unemployment soared to 24% in March.

The uncertainty facing the finances caused by the Covid-19 crisis meant that the Department of Finance last October issued a forecast for a 2021 budget deficit of €20.5bn this year.

Covid could still widen deficit 

However, it had also warned of the possibility that the deficit could be much wider again to hit as much as €25bn, under “more stringent-than-assumed containment measures” should the pandemic flare repeatedly through the year.

In March, the budget deficit will increase slightly above the running 12-month total of €14bn posted for the first two months of the year.

The Government is looking to the return of industries such as construction, where workers are paid more than the levels available under the pandemic unemployment payment to help boost income tax receipts later this year.