article banner
Exchequer returns

Exchequer returns December 2021 – Peter Vale commentary

Peter Vale Peter Vale

2021 was a remarkable year for the Irish Exchequer, with tax receipts hitting a record €68.4bn, a staggering €11.2bn ahead of 2020.

Income tax receipts remained resilient throughout the pandemic and finished the year 18% ahead of 2020. Higher earnings in key sectors fuelled the strong income tax figures, with many pandemic-related job losses suffered by those on lower incomes.

Consumer spending was largely unaffected by COVID in 2021, with consumers having quickly moved to greater online spending. A combination of higher earnings and government supports meant that disposable income was high, resulting in record VAT receipts of €15.4m.  

Importantly, the trajectory of both the income tax and VAT figures looks sustainable, with the possibility of even greater returns in 2022.

Corporation tax finished the year strongly, with a record €15.3bn collected for the year, significantly ahead of forecast. The technology and life sciences sectors drove much of the growth. With global tax changes not likely to kick in until 2023 at the earliest, there’s no reason to believe that the strong 2021 corporation tax returns will not be repeated in 2022.

The trajectory of corporation tax receipts for 2023 and beyond remains uncertain. However, a higher corporation tax rate of 15% will see tax revenues rise in the future, which may balance any taxes lost to market jurisdictions. It is certainly not a done deal that corporation tax receipts will fall in the future.  

Capital Gains Tax receipts in December were also strong, a very healthy 72% ahead of 2020, reflecting strong asset prices.

The greater than expected tax returns should reduce future Exchequer borrowing requirements. It also raises the possibility of tax cuts later this year in Budget 2023.  With an increasingly competitive corporate tax environment and a war for talent between countries, our high marginal income tax rates stand out. Making it more attractive for individuals to remain/arrive in Ireland will be critical.  

Overall, 2021 was a very positive year on the tax receipts front, with robust returns and an indication that the figures can be sustained in 2022 and beyond.