Fiscal watchdog is upbeat that ‘surprising’ income tax haul can be sustained                  

The independent watchdog that by law monitors the Government’s budget plans said  the increase in income tax revenues has been “surprising” but could likely continue nonetheless.

In new research, the Irish Fiscal Advisory Council, or Ifac, said that income tax receipts generated revenues last year of €26.7bn, some €4bn more than anticipated from this single tax source.

It was an unexpected bounty because employment levels were under pressure during the second full year of the Covid-19 crisis. 

Ifac said that the income tax returns meant the so-called effective tax rate rose to 24.4% and there was reason to be confident because of wage increases in the part of the economy that is dominated by multinational companies.     

“But much of the strength of taxes comes from strong growth in jobs and wages in the high-pay and high-tax sectors, including in information andcommunications technology and in finance,” Ifac said. 

“These high-pay sectors continued to do well through the pandemic,” said the watchdog.

Exchequer figures show that all four of the main tax sources – income, Vat, corporation tax, and excise duties – prospered last year. 

Ifac along with other economists had previously focused on the huge surge in corporation tax receipts, which at €15.3bn last year almost matched the returns from Vat.     

The reason for the corporation tax bounty has also been ascribed to multinationals whose exports continued to thrive during the Covid-19 crisis and made more profits and paid more in corporation tax to the Irish exchequer as a result.