The Irish Times view on the exchequer returns: ongoing volatility due to corporation tax swings

The exchequer returns for the first quarter of the year are broadly positive, with tax revenues just under 2 per cent ahead of the same period last year. This is below target, but the shortfall is blamed on a timing factor which has depressed corporation tax receipts in March and is expected to reverse later in the year. Given the small number of companies responsible for paying most of the corporation tax – and the timing of the issue – this is likely to relate to the affairs of one large multinational.

Previous experience shows that corporation tax can swing around due to these timing issues. And this may well happen again in 2024. But it again underlines the reliance of the exchequer not just on particular business sectors but also on specific companies. This almost guarantees volatility and also creates longer-term risks.

Elsewhere the figures show more stable trends, with a healthy 7.6 per cent annual increase in income tax and a 5.4 per cent rise in VAT. These trends offset a decline in corporation tax – the main payments of which are made later in the year. They suggest that the domestic economy remains solid and underpin expectations for growth in 2024.

Along with the exchequer figures, the two budget ministers, Michael McGrath and Paschal Donohoe, published legislation to underpin the two new funds being established into which excess corporation tax receipts will be paid. Some €4 billion, on current figures, will be paid into a new longer-term “Future Ireland Fund” each year to help to fund costs in areas such as ageing and the green transition from 2041 onwards. Meanwhile, some €2 billion each year will go into an “Infrastructure, Climate and Nature Fund” which will aim to support State investment spending in the event of a downturn.

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The establishment of these vehicles should be supported. But it will be interesting to see the political debate on the issue, as it would involve some €6 billion each year being taken off the table and thus being unavailable for spending and tax measures on budget day.