Government income tax receipts surged by over 9% in January, despite Budget 2023 tax adjustments taking effect for the first time.

Overall tax revenues in January were €7.5bn, 12% higher than last year.

VAT receipts were 18.5% higher than January 2022, though the Department of Finance claimed the annual comparison is distorted due to a technical factor which boosted receipts this year

DoF’s ‘underlying basis’ VAT calculation is that receipts were up 12% year-on-year.

Tom Woods, Head of Tax at KPMG, commented that inflation is the main driver in the increase in VAT receipts as shoppers spent more and bought less.

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“While the overall rate of inflation is slowing, vulnerable households and businesses continue to feel the impact of the cost-of-living crisis,” Woods added. “The government may therefore need to pause the plan to reverse some of the cost-of-living support measures. 

“Given that the 2022 VAT take on utilities was up €300m on 2021, there appears to be scope for government to extend these supports."

VAT reductions on fuel are due to expire at the end of February, along with the VAT rate on hospitality and tourism services being increased from 9% to 13.5%.

The monthly Exchequer Surplus – the excess of taxation over government spending – expanded by 27% year-on-year to €2.8bn.

This was despite an 8% increase in government current and capital spending through January.

Capital expenditure at Eamon Ryan’s Department of Environment, Climate and Communications was 200% ahead of a year earlier, due to ramping up of the retrofit schemes and rollout of the National Broadband Plan.

Minister for Finance Michael McGrath said the "strength in income tax is a positive signal of the continued resilience in the labour market with close to a record-low unemployment rate of just 4.4 per cent recorded in January”.

The minister added that the latest data suggest that the downturn in the domestic economy may not be as severe as previously anticipated by Department of Finance economists.

Minister for Public Expenditure Paschal Donohoe said: “This year nearly €78 billion will be spent on public services across government. There will be more teachers and Gardaí, more hospital beds and healthcare staff, and increased rates of payment for social welfare recipients.”

Tom Woods at KMPG said Capital Gains Tax receipts of €111m in the month were €41m more than in January 2022.

“CGT receipts for activity in 2022 are up on 2021 which of itself was an exceptional year for CGT receipts.  However, M&A has slowed and this could impact receipts in 2023.

“Consideration could therefore be given to reducing the CGT rate which has in the past stimulated deal activity and generated significant additional returns for the Exchequer,” said Woods.

Photo: Ministers Paschal Donohoe (left) and Michael McGrath. (Pic: RollingNews.ie)