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Corporate tax over-performance ‘coming to an end’ as receipts fall, McGrath warns

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Minister for Finance Michael McGrath has warned that the era of over-performing corporate tax “is coming to an end” as new figures showed a 25 per cent decline in business tax receipts for the first quarter of the year.

The latest exchequer returns, published by the Department of Finance, showed corporate tax, now the Government’s second largest revenue source, generated €2.4 billion for the three months.

This was €805 million down on the same period last year.

In 2023, corporation tax receipts were down on an annualised basis for several months before finishing the year at a record €23.7 billion, above what the department had forecast and against a headwind of slowing global growth.

“While it is expected that the fall in corporation tax this month relates to timing issues and is likely to be made up later in the year, it serves to remind us of the inherent unpredictability in what is a highly concentrated revenue stream,” said Mr McGrath.

He added that the concentration of the receipts around a small number of big multinationals underpinned the Government’s decision to establish two longer-term savings vehicles to future-proof the State’s finances.

Mr McGrath and Minister for Public Expenditure Paschal Donohoe published legislation on Thursday to establish the “Future Ireland Fund” and the “Infrastructure, Climate and Nature Fund”.

The Government aims to divert up to €100 billion of excess corporation tax receipts into the Future Ireland Fund by 2035 to help pay for the additional pension and health costs associated with an ageing population and the shift to a low-carbon economy.

Overall, the latest exchequer returns indicated the public finances remain in good shape.

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Tax receipts for the first three months of the year came to €20.1 billion with increases in income tax and VAT offsetting the decline in corporation tax.

Income tax, the Government’s largest tax head, generated €7.9 billion for the period, €559 million or 7.6 per cent higher than the same period last year.

The positive trend in income tax reflects the current buoyancy of the labour market with a record 2.71 million people at work.

VAT receipts were up 5.4 per cent on last year, totalling €7.1 billion for the quarter. The sales tax has been helped by the strong labour market. On a cumulative basis, more people working means more overall spending.

Inflation has also bolstered Government tax receipts with consumers having to spend more to buy the same amount of goods and services.

The latest figures gave rise to an exchequer surplus of €300 million for the quarter. This compares to a deficit of €2.1 billion in the same period last year. On a 12-month rolling basis, the exchequer recorded a surplus of €3.5 billion.

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