Slight fall in corporation tax in May
Corporation tax receipts dropped slightly in May according to the latest exchequer returns, underlining the volatile nature of this source of revenue.
A total of €2.7 billion in tax was collected from businesses during the month, down €200m or 6.2% on the same month last year as higher repayments and lower profitability impacted returns.
However, corporation tax receipts are still €1.1 billion or 20.7% ahead of where they were at this point last year, reaching €6.3 billion.
Overall, the exchequer took in €33.1 billion in the first five months of the year, an increase of €3.1 billion or 10.2% on the same period in 2022.
€9 billion in tax was received in May itself, up just 1% on the same month a year ago.
At the end of May the exchequer had a deficit of €600m, compared to a surplus of €1.4 billion at the same point last year.
The Department of Finance said the difference was driven by the transfer of €4 billion to the National Reserve Fund (NRF) in February.
But when the figures are looked at on a 12-month rolling basis, the exchequer had a surplus of €3 billion at the end of last month.
However, this total falls to an underlying deficit of €4 billion on a 12-month rolling basis, when transfers to the NRF, proceeds from the disposal of bank equity and excess corporation tax receipts are taken into account.
Income tax revenue was up 9.4% or €200m on May of 2022, and by the same percentage for the year to date as a whole.
May is a VAT due month and receipts to the end of the month were up almost 12% compared to the same period last year, although growth did slow.
Excise receipts were up 4.5% on the month, but on a cumulative basis are broadly flat compared to the first five months of 2022.
A trend of relative weakness in stamp duty continued, with these receipts down €30m on May last year.
By the end of May a total of €42.5 billion had been spent by the Government, with gross voted expenditure of €33.8 billion, 6.3% ahead of the same period last year.
Minister for Finance Michael McGrath said the Exchequer returns remain robust but the decline in corporation tax receipts highlights underlying vulnerabilities.
“Today’s Exchequer returns present a mixed picture of our public finances. Income tax receipts remain encouraging, reflecting an economy where the unemployment rate is now at its lowest level on record, but growth in VAT receipts slowed compared to previous months. While still elevated, corporation tax receipts in the month fell on an annual basis.”
The minister said this is a volatile and potentially unreliable revenue stream. “This decline highlights that, while headline figures may appear positive, there are real underlying vulnerabilities in our public finances.”
He said the Government is taking action to address the risks around corporation tax, transferring €6 billion in windfall receipts to the National Reserve Fund to reinforce fiscal buffers.
Minister for Public Expenditure, Paschal Donohoe said today’s figures show an increase in public expenditure of €2 billion in comparison to the same period last year, with a total spend of almost €34 billion.
“This level of investment demonstrates the Government’s continued commitment to improving public services as we support our growing population. In particular, these figures reflect the progress in enhancing our infrastructure as part of the National Development Plan.”
Peter Vale, Tax Partner at Grant Thornton Ireland, while overall May was another strong month for the Exchequer, there were some signs of a slowdown in key tax heads.
“On a positive note, income tax receipts are running at 9.4% ahead of the same period in 2022. Concerns about the delayed impact of technology sector job losses seem to have diminished, as the robust labour market continues to drive tax figures forward.
“While VAT figures year to date are running 11.7% ahead of last year, the month of May saw receipts a much smaller 2.7% ahead of May 2022. This would suggest some slowdown in consumer spending and also likely reflect the adverse impact of higher interest rates on discretionary spending power. The Department also notes that timing issues may play a part in the weaker numbers.
Mr Vale said it was a similar situation with corporation tax receipts, over 20% ahead year to date but relatively weak receipts in May. “This again points to the volatility in corporation tax receipts and will place even more focus on the critical month of June. Positive June returns would suggest full year corporation tax figures will be strong. However any weakness in June may indicate lower than expected full year figures.”