Higher tax revenues generated a surplus in the Treasury of 1.4 billion euros in May, according to the latest government declarations from the Ministry of Finance. This compares with a deficit of € 6 billion at this time last year, a period affected by Covid-19 restrictions.
Large increases in VAT, corporation tax and income tax drove tax revenues – so far this year – to EUR 30.1 billion, which was EUR 6.4 billion, or 27 per cent, before the same period last year. The government’s budget position was also helped by a decline in spending linked to the phasing out of Covid-related support, the ministry said.
The Government’s Employment Wage Support System (EWSS) for Covid-affected companies ended this week, while the pandemic unemployment benefit (PUP) for affected workers was phased out in March.
Income tax revenues for the five months to the end of May generated 11.9 billion euros, 17 percent more than the same period last year, reflecting a strong recovery in the state labor market. Separate figures this week put unemployment at a pandemic low of 4.7 percent, on a par with the pre-pandemic.
VAT receipts gave the Treasury 8.9 billion euros, an increase of 29 percent compared to the same period last year. Sales tax is the strongest indicator of consumer activity and is in line with other data indicating an increase in retail trade. However, higher inflation and depressed real incomes are likely to dampen consumption growth in the coming months.
The tax deduction was also strengthened by the continued strong development of corporate tax, which generated 5.2 billion euros for the five-month period, 77 percent up compared to last year’s total for the same months, indicating that the Treasury is heading for another unexpected business tax. corporate tax In May alone, revenues amounted to EUR 2.9 billion, which the department linked to “increased profitability in the multinational sector”.
The strong tax revenues resulted in a Treasury surplus of EUR 1.4 billion in May. But on a 12-month rolling basis, a better indicator of the trend, the department said that the treasuries were largely in balance with a small surplus of 32 million euros.
On the expenditure side, total expenditure at the end of May amounted to EUR 31.8 billion, which was 4% or EUR 1.2 billion during the same period in 2021. Health was almost EUR 9 billion, reflecting the prevalence of Covid in the earlier part of the year.
“Today’s figures show that tax revenues remain robust with strong growth evident in the vast majority of tax chiefs,” said Finance Minister Paschal Donohoe. “While the annual comparisons are distorted due to a number of factors, in particular the public health restrictions that were in place last year, the underlying trends are a good signal of continued momentum in the domestic economy,” he said.
However, he warned that inflationary pressures would mean less accommodating monetary policy in the coming months. The European Central Bank is expected to launch a sequence of interest rate hikes later this year. “What is clear is that the higher the level of government debt, the more serious the consequences of a possible increase in borrowing costs will be,” Donohoe said.
“It is crucial that we use the strong momentum of public finances to rebuild and strengthen our fiscal buffers so that in this increasingly uncertain world we maintain our ability to respond quickly and effectively to future shocks,” he said.
Despite the cessation of the government’s main Covid support program, Minister of Public Expenditure Michael McGrath said that the pressure of expenditure related to Covid, the state’s humanitarian response to the war in Ukraine and the latest cost-of-living measure remains. “While the government cannot completely isolate the economy and society from these external factors, measures have been taken to mitigate their impact,” he said.
Peter Vale, a tax partner at Grant Thornton Ireland, said the figures provided “good news” for the government, albeit with significant challenges ahead. “Overall, while May was another good month for the Treasury, there will be nervousness about the effects of a global decline in tax revenues for the rest of the year, particularly corporate tax returns,” he said.
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