Home Directory *IFSC Online Ltd Exchequer deficit of €7½ billion recorded in 2021: Corporation tax receipts at similar levels to VAT

Exchequer deficit of €7½ billion recorded in 2021: Corporation tax receipts at similar levels to VAT

Income tax receipts were €26.7 billion last year, up €4.0 billion (17 per cent) on 2020, reflecting the strong recovery in the labour market last year.

The Exchequer position in any given month offers only a partial view of the overall fiscal situation. The Exchequer represents around 80 per cent of Government revenues and expenditures. As such, when attempting to view ‘the state of the public finances’ a supplementary metric is needed: the General Government Balance (GGB) which captures the whole of government activity and is the most comprehensive and internationally recognised way of reporting the fiscal position.  The fine GGB position for last year will be reported by the CSO in March.

An Exchequer deficit of €7.4 billion was recorded to end-December 2021.  This compares with a deficit of €12.3 billion in 2020.  The almost €5 billion year-on-year improvement in the Exchequer balance is largely driven by significant increases in tax revenue.  Cumulative tax receipts of €68.4 billion at the end of the year were up by €11.2 billion (almost 20 per cent) on 2020, with strong growth evident across almost all tax heads.

At €26.7 billion, income tax receipts have recovered to above pre-pandemic levels reflecting inter alia the ongoing recovery in the labour market, alongside the strength of wages in sectors less affected by the pandemic.  Reflecting the rebound in consumer spending, VAT receipts were €15.4 billion, up 24 per cent on the same period in 2020 (though year-on-year comparisons are affected by significant levels of tax warehousing in 2020).  Corporation tax receipts remained very strong last year at €15.3 billion, up almost 30 per cent on 2020, largely due to significant export sales and profitability in the life sciences/pharma and ICT sectors.  As a result, corporation tax receipts are now at similar levels to VAT and account for over 22 per cent of total tax revenue.

Total net voted expenditure was €71.6 billion in 2021.  This was €3.7 billion (5.5 per cent) higher than in 2020.  The rise in expenditure reflects the continued provision of Covid supports for the economy and public services throughout 2021.

Commenting on the figures, the Minister for Finance, Paschal Donohoe T.D. said:

The end-year Exchequer returns show that the deficit was lower than expected last year.  This reflects several factors, including stronger corporate tax receipts, underspending in voted public expenditure and the more rapid than anticipated recovery in the domestic economy, in particular, the labour market. However, the economic and fiscal outlook has become increasingly uncertain in recent months following the emergence of the highly transmissible omicron variant of the virus.   The Government has responded to the necessary reintroduction of public health restrictions by providing further supports to those whose incomes, employment and livelihoods have been impacted.

“Once we overcome this wave of the virus and reopen the economy, it is essential that we pivot away from generalised supports and transition towards more targeted fiscal measures.

“It is important to stress that corporation tax receipts continue to underpin revenue growth.  It is highly likely that, at some stage, these receipts will decline.  This is why we must ensure prudent management of the public finances so that we are not left with a structural gap between revenue and expenditure in future years.”

The Minister for Public Expenditure and Reform, Michael McGrath T.D. said:

“Overall gross voted expenditure for the year of €87.5 billion included provision for €13½ billion in expenditure related to Covid-19. This funding has supported the delivery of key public services while addressing the challenges of Covid-19.

Critically it has also provided essential income and employment supports to our workers and businesses, with in aggregate expenditure on the Pandemic Unemployment Payment and the Employment Wage Subsidy Scheme amounting to €8.6 billion in 2021. These measures, in protecting incomes and maintaining the link with employment, have supported the recovery in employment. 

As we deal with the Omicron variant, and with sectors including hospitality and live entertainment operating under public health restrictions, Government has continued to provide these supports alongside targeted measures for the impacted sectors.

The ability of our health service to respond to the challenges of Covid-19 is crucial. In 2021, overall expenditure by the Department of Health of €21.8 billion represented an increase of c. 4½ per cent on the previous year. This expenditure has provided for sustainable improvements in core health services while funding the necessary measures to allow our hospitals to address Covid-19 and to fund testing and tracing and the successful vaccine programme.

Capital investment continues to grow under the Revised National Development Plan with a record €9.9 billion in gross capital expenditure in 2021. This investment will see much needed improvements in our infrastructure and more social and affordable homes being built.

Fiscal Monitor December 2021