Days of surging corporation tax receipts are over, warns McGrath

Talks intensify ahead of budget on October 10, with concerns around overspends in the Departments of Health and Children and a drop in corporation tax for the second consecutive month

Finance Minister Michael McGrath and Public Expenditure Minister Paschal Donohoe will today  hold a marathon round of bilateral budget meetings with ministerial colleagues ahead of briefing the three Coalition leaders this evening. File picture: PA

The days of surging corporation tax receipts are over,  Finance Minister Michael McGrath has warned, as budget negotiations kick up a notch today

This year's tax take will "undershoot" predictions. That, coupled with an overspend in the Departments of Health and Children, is set to squeeze the parameters of next Tuesday's budget.

The final exchequer returns to be published before the Budget reveal a drop in corporation taxes for the second month in a row. Receipts from the lucrative levy were down by €0.7bn, or 16%, in the quarter, highlighting the "extreme volatility" in this revenue stream.

It comes as Mr McGrath and Public Expenditure Minister Paschal Donohoe today prepare to hold a marathon round of bilateral budget meetings with ministerial colleagues ahead of briefing the three Coalition leaders this evening.

Cabinet ministers fear a €1.1bn overspend in the Department of Health will lessen the amount available to other departments next year.

All of this is impacting the package for once-off cost-of-living payments which the Government has already warned will not be as generous as last year. However, at least two energy credits, as well as a lump-sum fuel payment, are expected.

Mr McGrath said the tax take to the end of September demonstrates the need for caution.

Overall, an exchequer surplus of €1.1bn was recorded to the end of last month. This compares with a surplus of €7.9bn in the same period last year, with the bulk of the difference driven by the transfer of €4bn to the National Reserve Fund (NRF) in February.

Corporate tax receipts for the year stand at €14.4bn, which is still higher than last year but significantly behind what had been anticipated.

Mr McGrath said: "The days of corporation tax receipts growing at a really high rate, year in, year out, we believe are over."

He said that "particular weaknesses" are being seen in the pharmaceutical and ICT areas.

"We have always highlighted that this is a particularly volatile tax head and anything that can go up as quickly as it has gone up is subject to significant fluctuations. So we're seeing a significant moderation of the rate of growth, but it is still growing year on year."

However, with €6.5bn earmarked for new measures, it is expected that targeted mortgage interest relief; an increase in the tax credit for renters; relief for landlords; and the expansion of free schoolbooks to second level will be among the items announced on October 10.

Bilateral meetings

Children's Minister Roderic O'Gorman, who is among those scheduled for bilateral meetings today, is pushing for an increase in core funding for childcare providers as well as a reduction in childcare fees. However, given the tighter scope, it is not expected that parents will see a repeat of the 25% cut in costs that featured in last year's budget.

Social Protection Minister Heather Humphreys wants an increase in social welfare payments of €10 or more and an expansion of child benefit.

The health budget will be discussed over the next two days, with an expectation that overall spending will remain untouched from this year. Sources have indicated that Health Minister Stephen Donnelly would like to see free contraception expanded to women aged 31 to 35, but there is an acceptance that this may not be possible.

Defending the level of spending in his Ddpartment, Mr Donnelly said: “We need to provision for the reality of healthcare, we need to provision for how much healthcare actually costs."

With other ministers raising "serious concerns" around the overrun in Health, Mr Donohoe last night moved to play down pre-budget frustrations. "I will work everything out with every colleague privately in the estimates meetings. The Minister for Health is understandably making the case for the funding needs that his department is confronting, as is every other minister."