Understanding the economic situation of Irish households can be complex due to the use of aggregate measures. Although Ireland’s economy, tracked by the Modified Domestic Demand (MDD) indicator, squeaked through recession last year by growing 0.5%, according to the Central Statistics Office, this was largely due to a 3.1% boost in consumer expenditure after inflation adjustments.
One might question how households can bolster spending amidst escalating energy costs, food prices, and mortgage repayments. Nevertheless, the surge in spending does not indicate an increase in individuals’ expenditure but rather corresponds to a growing population and employment rate. Specifically, the number of people working hit a record 2.71 million, meaning more income and spending, leading to an aggregate rise in consumer expenditure.
However, the reality remains that numerous singular households are grappling with high living expenses, necessitating slashing non-essentials or depleting savings to cover basic necessities. There is also a noticeable increase in short-term mortgage delinquency.
This paints a more varied picture than the favourable macroeconomic data associated with the Irish economy suggest. It is demonstrated by the latest Exchequer figures, which show that government tax revenue stood at €12 billion at the end of February, a 5.5% increase on the previous year.
The rise was primarily driven by robust income tax receipts, up nearly 6% at €5.3 billion, mirroring the record number of people employed in the economy.
Post-pandemic labour market robustness is a prominent characteristic of the global economy. However, the European Central Bank decision-makers are concerned that strong labour markets, particularly wage growth in the services sector, may prolong higher inflation and, as a result, extended high-interest rates.
The month of February is typically regarded as the least active period for exchequer earnings. As it’s not a time when Value Added Tax (VAT) and corporation tax are usually collected, the main concern becomes whether there’s any change in the pace of income tax collection. According to recent statistics, it seems that there hasn’t been any significant change.
Peter Vale, a tax partner at Grant Thornton Ireland, pointed out that income tax collections are still robust, in spite of signs of a deceleration in salary growth. He outlined that the high rate is probably driven by an increase in the number of people in jobs.
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