August sees €1bn drop in Corporation Tax receipts

Sharp drop highlights volatile nature of the tax, the majority of which is paid by just a small number of companies

Minister for Finance, Michael McGrath: "Serves as a timely reminder of the underlying vulnerabilities that still remain in our public finances." Picture: Sam Boal/RollingNews.ie

There was a sharp drop in the amount of corporation taxes collected in August highlighting the volatile nature of the receipts and giving concern just over a month before the delivery of Budget 2024.

Publishing Exchequer figures for August, the Department of Finance corporation tax receipts declined sharply, dropping to €1.8bn around €1bn lower than in the same month last year.

While a sharp drop was anticipated, the magnitude of the decline is somewhat larger than had been expected by officials who said it highlighted the inherent volatility of this tax.

However, Corporation Tax receipts for the year to date amount to €12.7bn, up on last year by €0.9bn. "The €1bn drop in corporation tax this month, compared with the August 2022 figures, serves as a timely reminder of the underlying vulnerabilities that still remain in our public finances," Mr McGrath said.

“As we approach Budget 2024, the fall in corporation tax reinforces the importance of striking the correct balance between continuing to invest in our public services and maintaining the long-term sustainability of our public finances.”

Overall tax receipts were €53.1bn to the end of August, up €3.3bn or 6.6 per cent on an annual basis, driven by strong income tax, VAT and corporation tax receipts.

At €20.7bn, cumulative income tax receipts remain robust, up by 8.2 per cent on an annual basis. On a monthly basis, receipts of €2.5bn were up by just under 4 per cent.

August is a non-VAT-due month and receipts of €0.3bn were modest. On a cumulative basis, VAT remains strongly ahead of the same period in 2022, up by €1.4bn or 11.2 per cent.

A range of internal and external reports have raised concerns about the volatile nature of the corporation taxes in Ireland. However, the 36% decline in August further brings the issue into focus. The drop can be largely attributed to a significant jump in the tax in August 2022 when it is believed that one of the major multinationals in Ireland frontloaded some of their payments.

However, officials will be examining next month's Returns closely to see if a trend is emerging.  Mr McGrtah said he has highlighted the risk related to these receipts many times. "Government has taken a number of steps to mitigate our exposure to this volatile revenue stream. €6bn in windfall corporation tax receipts has been transferred to the National Reserve Fund, and work is ongoing in relation to establishing a longer-term investment fund," he said.

"Government has also committed €2¼bn in windfall receipts to fund increased capital investment over the period 2024-2026, enabling us to use some of these temporary revenues to fund permanent improvements to our economy and society."