Mid-year figures from the treasury reveal an increase of more than 9% in taxes over the first six months of this year, demonstrating robust financial health. Corporation tax, contributing impressively with June receipts of €9.6 billion, surpasses last year’s figures by over 38%. Over the first half of the year, corporation tax has risen by 15%. Reflecting the robust employment market, the income tax collection totalling €16.5 billion has marked a 7.5% rise over the six-month period.
These promising figures put the government in a strong position as they map out next year’s budget. However, they face the challenge of managing expectations for tax cuts and spending hikes, not just from external parties but also within their own team. The responsibility of controlling this will lie primarily with Jack Chambers, the new Finance Minister, and Paschal Donohoe, the Minister for Public Expenditure.
The Finance Department is likely to argue about the inherent volatility in corporate tax collections. Contrarily, some backbenchers and spending ministers will emphasise that, despite repeated warnings over the years, the tax revenue has only continued to climb. Both perspectives have merits, but the essential point remains that temporary revenue streams must not be used to support routine spending.
Achieving equilibrium will invariably be challenging and will necessitate acknowledging significant global uncertainties. With the government’s expenditure already rising significantly—12% higher than the previous year—following substantial increases over recent years, the current robust treasury finances pose opportunities and risks. They provide the chance to support crucial investments in sectors such as housing, water, energy, hospitals, and education. However, the risk of offering a pre-election hand-out package cannot be ignored.
There’s a long summer of discussions ahead, with major decisions expected as soon as next week when the Summer Economic Statement, outlining the general fiscal parameters, is published by the government. An agreement to set aside €6 billion next year in two new funds to bolster future expenditure has already been settled. Even so, the temptation to exceed the rule that spending should only increase by 5% per annum could prove challenging to resist.
“Crafting a budget in light of the political strain from voters and the opposition will be a complex task. Certainly, there are prospects present, but the real task involves creating a long-standing, multi-year plan addressing the pivotal matters, rather than creating a facade that appeasing voters with pre-election incentives will present a solution. We are reminded of a familiar parental advice when giving money to their progeny – “don’t blow it all in one go”.”