Michael McGrath (Cork South Central, Fianna Fail) | Oireachtas source

I propose to take Questions Nos. 88, 92, 125, 126 and 134 together.

The Exchequer returns to the end of September this year showed an overall surplus of €1.1 billion. This compares with a surplus of €7.9 billion at end of September 2022. The bulk of the deterioration was driven by the transfer of €4 billion to the National Reserve Fund earlier this year.

Overall, tax revenues to the end of September stood at €61.4 billion, €3.5 billion or over 6% ahead of the same period last year. This has been driven by income tax, VAT and corporation tax.

On income tax, receipts of €23.1 billion were up by €1.8 billion, or over 8%, remaining ahead of target and reflecting the strength of a labour market that is at full employment.

VAT receipts to the end of September are up by €1.5 billion, or over 9.5% on 2022, reflecting continuing resilience in consumption.

Corporation tax receipts of €14.4 billion to the end of September are ahead of the same period last year by €600 million or 4.4%, but are significantly behind target. Since 2015, corporation tax receipts have increased substantially. Last year, corporation tax receipts stood at €22.6 billion. This represented a more than doubling of 2019 receipts and a more than fivefold increase on the position a decade ago, with corporation tax surpassing VAT for the first time to become the second largest source of taxation revenue.

Certainly, these receipts are welcome. They reflect positively on Ireland as a leading destination for highly profitable multinational firms. However, as the Deputy will recall, I have frequently warned of the risks around corporation tax. These revenues are built on an extremely narrow tax base, with just ten firms accounting for well over half of all receipts. This means that this tax head is vulnerable to the business decisions of a small number of multinational companies and is subject to exceptional potential volatility. The exceptional volatility of this tax head has been particularly evident over the last two months, with sharp declines in corporation tax receipts recorded. Corporation tax is now €700 million behind profile for the year. This is a clear demonstration of the dangers of relying on volatile tax revenues to fund permanent spending.

A significant proportion of the current corporation tax yield is estimated to be windfall in nature, in other words, it is not linked to the domestic economy and could prove transient. At the time of the stability programme update in April, windfall receipts this year were estimated at around half of the entire corporation tax yield for the year. My officials will be revising this estimate, taking into account the latest available information, as part of the fiscal projections published next week in the budget.

The Government has regularly warned that corporation tax is not a suitable base for permanent expenditure commitments and is mitigating the exposure of our public finances to this revenue stream. This is why we set up the National Reserve Fund and put €6 billion of windfall receipts away. In addition, €2.25 billion in windfall receipts will also be made available over the period 2024 to 2026 to fund capital projects. This will allow us to take advantage of these temporary receipts to build long-lasting improvements to our society and economy. Work is also under way on proposals for a long-term savings fund which will invest these receipts to help fund part of the future costs of structural change, particularly the costs associated with an ageing population, and the climate and digital transitions.

Ultimately, however, the best way to mitigate the risk of an over-reliance on corporation tax is by continuing to pursue a sensible budgetary strategy that keeps expenditure growth at sustainable levels. We must also continue to run budgetary surpluses. I believe that the fiscal parameters we have set out in the budget strike the appropriate balance, giving Government the scope that we need to address the challenges of today, including providing support to address the cost-of-living challenges, supporting the vulnerable, assisting and encouraging enterprise, and continuing to invest in our public services while also ensuring that our public finances remain on a positive trajectory over the medium term.

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