It was a case of business as usual in the first set of tax numbers for 2022, with strong figures across all the key tax heads.
January is the biggest month of the year for VAT, with the key holiday season receipts returned.
Figures for the month were an impressive 32% ahead of the same month in 2021, although the comparison is slightly distorted by a lower VAT rate in that month. Maybe of even greater relevance is that VAT receipts were 15% ahead of January 2020, ie pre COVID.
In a nutshell, after a severe dip in the first half of 2020, consumer spending has quickly rebounded with consumers easily adjusting to greater online spending.
The fact that VAT returns were so strong despite ongoing restrictions, including the 8pm closing time for the hospitality sector over the busy Christmas period, demonstrates just how resilient the Irish economy has been during the pandemic.
Income tax figures were equally strong, 13% ahead of January 2021, which reflects a tight labour market with wage inflation a key theme.
At this point, it appears unlikely that the phasing out of government supports over the coming months will see tax receipts drop. The economy seems more than capable of standing on its own two feet.
The strong income tax figures cast a spotlight on our high personal tax rates, which act as a disincentive to come to Ireland, or to remain here. It can be easy to forget that the high rates are a legacy of temporary increases to pay for the financial crash 13 years ago, yet remain in place.
January is a quiet month for corporation tax. However 2021 was an exceptionally strong year for corporation tax and there’s no reason to believe that we won’t see this continue in 2022, which should further boost the Exchequer figures as the year progresses.
For 2023 and beyond, while the trajectory remains uncertain, a higher 15% corporate tax rate may well mitigate the adverse impact of other changes, meaning our receipts remain stable. However uncertainty remains the key word.
In summary, strong figures to start 2022 and nothing to suggest otherwise for the foreseeable future.
