Record tax revenues provide Government with temptation for bumper spending budget

Finance Minister Michael McGrath hailed the 'robust' income tax revenues and a 'steady growth' for Vat receipts. Picture: Daragh Mc Sweeney/Provision

The Government collected a record €47.8bn in tax revenues for the first seven months of the year, easing concerns about the health of the economy, but providing further temptation for a bumper spending budget this autumn, experts said.

The latest exchequer returns show that income tax and Vat receipts again played starring roles, despite a number of tech corporate giants having shed a large number of jobs in recent months.

Tax revenues brought in a total of almost €6.9bn in July, up 4.6% from the same month last year. That means the Government has collected a haul of €47.8bn in tax revenues so far this year, up 10% from the first seven months in 2022.

Finance Minister Michael McGrath hailed the “robust” income tax revenues and a “steady growth” for Vat receipts as reflecting an economy running at almost full employment, but again highlighted the large amounts that the Government plans to put aside into reserve funds.

But economists said Mr McGrath will be tempted to further increase spending and tax changes beyond the Government’s summer proposal for a 2024 budget package of €11bn, as a general election draws closer.

The Irish Fiscal Advisory Council earlier this summer reprimanded the Government over its budget plans that involve the Coalition again breaching its own spending-growth rule.

The Vat and income tax revenues reflect record-high levels of employment and near-record-low levels of unemployment, as well as spending by consumers that is, so far, holding up.

“The finance minister is going to have an exceptional level of resources for this year at least,” said Gerard Brady, chief economist at business group Ibec.

Our view is that we are reaching in the coming year the peak of the buoyant tax receipts.”

Kieran McQuinn, economics professor at the Economic and Social Research Institute, said the figures reinforce the evidence of continuing growth in the domestic economy. The ESRI backed the Government’s plans for reserve and infrastructure funds amid questions about the capacity of the economy to absorb large amounts of spending.

The Government will likely be heartened by the amounts collected from Vat receipts despite consumer price inflation still running at its hottest levels for decades.

In a Vat-payments month, the tax brought in a haul of €2.9bn in July, an increase of almost 5% from the same month last year. That means that the Government collected a total of €13.25bn from Vat revenues in the first seven months of the year, up by 11.5% from the same period in 2022.

The strength-in-depth of the Irish economy was also reflected in income tax receipts of €2.7bn in the month, which were up 8.7% from July 2022.

Income tax receipts are now running at €18.2bn so far this year, up by almost 9% on the same period last year.

“Overall, the exchequer remains on track for a large year-end surplus, with the possibility of a significant tax package in October’s budget," said Peter Vale, tax partner at Grant Thornton Ireland.

Corporation tax receipts also increased in July and are now running at €10.9bn this year, an increase of almost 21% from the first seven months in 2022.

Tom Woods, head of tax at KPMG, said the exchequer figures provide the Government with "options for the upcoming budget such as investing in personal tax reform” and for help for small firms.