Today’s Exchequer figures show that the positive figures for the first six months of the year have continued into July. All tax heads are well ahead of last year and in the main ahead of forecast, with only weak DIRT receipts bucking the trend. Key highlights from the most recent numbers are strong VAT receipts, reflecting increasing consumer confidence, robust income tax figures, reflecting ongoing job creation and particularly buoyant corporation tax figures, driven by strong corporate profits.
While the positive income tax receipts point to a strong domestic economy, ideally income tax would make up a smaller percentage of the overall tax take. This is generally seen as leading to more sustainable economic growth. We can expect some measures to address this in October’s Budget, with a decrease in effective tax rates for lower and middle income earners in particular. It looks like top earners will be stuck with high marginal tax rates, which continue to act as a disincentive to the creation of employment. This is unfortunate but not likely to be remedied for 2016.
Corporation tax receipts remain particularly robust, with July’s figures reflecting the positive results of both Irish and multinational companies. Key for Ireland is our ability to retain companies and jobs here, with competition increasing on several fronts. Our closest neighbour, the UK, recently announced plans to cut its corporate tax rate to 18%, reflecting a general global downward trend in corporate tax rates. The new Knowledge Development Box is part of Ireland’s effort to remain competitive, with a new low tax rate due to be announced in October for income derived from Intellectual Property such as patents.