The government’s top officials are increasingly alarmed about the future of corporation tax revenues as the latest exchequer returns reveal a significant decline in receipts from this tax for the third consecutive month.
In October, compared to the previous year, corporation tax receipts dropped by 45%, following declines of 12% in September and 36% in August. This trend is causing significant unease within the Department of Finance, especially with the imminent release of this month’s returns in early December. November is a crucial month for various tax payments, including corporation tax, and a substantial further drop would create a substantial gap in the government’s fiscal planning.
At present, there are no immediate plans for budgetary adjustments due to the decrease in revenues. Nevertheless, it is likely that the government will operate with a lower surplus this year.
Both Minister for Finance Michael McGrath and Minister for Public Expenditure Paschal Donohoe have repeatedly cautioned about the windfall nature of the recent surge in the State’s corporation tax revenues. These revenues have grown from €4 billion in 2012 to nearly €23 billion last year and have doubled since 2019.
Officials are now indicating that the decline in revenues, which was first observed during the summer, is not merely a temporary fluctuation. Forecasts for tax revenue may need to be adjusted accordingly, with the slightly higher rate of unemployment reported this week adding to their concerns.
Exchequer figures illustrate that the government collected €5.1 billion in tax in October, a drop of almost €1 billion or 16.4% compared to the same month last year. October’s €1.3 billion in corporation tax receipts was €1.05 billion less than in October 2022.
The corporation tax receipts for the year up to 2023 now lag behind the figures from the first ten months of the previous year. At €15.7 billion, they are €435 million, or 2.7%, lower than the same period in 2022.
The Department of Finance attributed this decline to “the weakness of exports this year, particularly in the pharmaceutical sector.” It is believed that the drop in revenues is a result of declining profits in a small number of major pharmaceutical companies after the end of the pandemic.
Minister McGrath described the returns as presenting a “mixed picture” of the public finances, with higher income tax and VAT receipts this year indicating the “underlying strength of our economy.” However, the fall in corporation tax receipts underscores the importance of the government not making permanent fiscal commitments based on windfall revenues.
Peter Vale, a tax partner at Grant Thornton Ireland, characterized the figures as “stark” and expressed concern about the timing of this trend just before November. Tom Woods, head of tax at KPMG, added that a weaker performance in corporation tax had been predicted, but the drop in October appears to be more significant than anticipated in figures published just last month. “The signs are pointing to a greater fall in planned receipts than even the revised projections estimated,” he concluded.