Goodybody Stockbrokers today claimed that booming tax revenues and the ending of COVID supports contributed to a further improvement in the Irish public finances in May.
While April’s Stability Programme Update (SPU) set out a forecast for a general government deficit of €2bn (0.8% of GNI), the position after 5 months of the year is now a modest surplus, suggesting this target could be beaten.
The latest figures show that tax revenues grew by 20% year on year (yoy) in the first five months of 2022 and were 38% above prepandemic levels. The biggest contributor to the growth in the year and relative to prepandemic levels is corporation tax, which at €5.2bn, is almost three times the amount raised in the same period in 2019. Income tax is up 17% yoy and 36% above 2019 levels.
Growth in multinationals is also contributing to this trend given the generally high wages in the sector and the progressive nature of Ireland’s tax regime. Goodbody say the exposure of the Irish public finances to FDI developments has grown substantially over recent years.
Spending is down 3% due to a 25% yoy reduction in spending on social protection as the pandemic supports have now been fully wound down. Excluding this department, spending is up by 9% yoy up to May, with spending on Health up by 13% yoy.
According to Goodbody Stockbrokers, "On a headline level, the Irish public finances continue to improve, and it is quite extraordinary that they have returned to balance so quickly. However, given the rising exposure to multinationals, the rising risk of an international slowdown and the rising cost pressures from high inflation, it would be a sensible approach to “bank” some of these extra tax revenues rather than put them into a recurring element of spending. Ireland should learn from the mistakes it made on this front in the mid-2000s. Past tax revenues are not a guide to the future."