Huge cash surplus of 6.3 billion euros gives the government more than expected for the budget

Ministers Paschal Donohoe and Michael McGrath are walking out with dramatically more money than they anticipated in their budget announcement this month.

The latest Treasury figures up to the end of August show that the government is already running a large surplus of €6.3 billion.

This represents an improvement of €13 billion from this point last year and gives ministers significant resources to deal with the cost of living crisis.

Consistently strong corporate, income and VAT receipts year-to-date have left public finances in a rough patch compared to the deep pandemic deficits of the past two years.

But the winding down of Covid-19 support and the reopening of the economy this year has resulted in significantly lower spending and a surge in business activity, filling government coffers.

The robust result in tax revenue just ahead of such an important budget will certainly put pressure on Mr Donohoe and Mr McGrath to open the taps.

With regularly rising energy prices putting a strain on both household and business budgets, the government could be forced to adopt a bigger package than the $6.7 billion.

Figures from the Ministry of Finance show that tax revenue rose by 26.3 percent year-on-year to 49.8 billion euros by the end of August.

In the past month alone, 6.4 billion euros in taxes were collected – almost a third more than in August 2021 – mainly driven by new record receipts from corporate taxes.

Adding in non-tax revenue streams, total Treasury receipts now stand at €66.1 billion for the year against total expenditure of €59.8 billion.

Some of the strong tax receipts can be attributed to what is known as the base effect, with comparisons to last year’s lockdown economy flattering this year’s receipts.

VAT, for example, has soared 24 percent this year, largely due to weak numbers in 2021.

But income taxes, which are more stubborn, have also rebounded sharply, while corporate taxes are at all-time highs.

Income tax revenue is €19.2 billion, up 16 percent from the same period in 2021. Corporate taxes are €11.8 billion, or about two-thirds higher than last year.

While the corporate tax windfall is welcome, it has raised concerns that the state is over-reliant on the revenues of a small handful of large multinationals.

An analysis released by the Treasury Department on Thursday showed that employees of multinational companies account for about 33 percent of income taxes. Together with the corporate taxes they contribute, multinational companies account for around 40 percent of all tax revenues from these two categories alone.

“This has clearly been a tailwind in recent years, but it is highly concentrated and vulnerable to a turnaround in corporate profitability,” said Goodbody chief economist Dermot O’Leary.

According to the National Accounts published by the Central Statistical Office, multinationals were a key driver of strong economic growth in the second quarter.

GDP grew 1.8 percent between April and June, or 11 percent compared to the same period last year. Modified domestic demand, which is considered a more accurate measure of the economy, grew 4.3 percent for the quarter and 11 percent for the year.

According to Goodbody, 85 per cent of economic growth since 2019 has come from the ICT and manufacturing sectors, which in Ireland are dominated by a few big tech companies, pharmaceutical companies and medical devices.

https://www.independent.ie/business/budget/huge-63bn-exchequer-surplus-gives-government-more-than-expected-for-budget-41957120.html Huge cash surplus of 6.3 billion euros gives the government more than expected for the budget

Fry Electronics Team

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