Deficit on course to fall to 2% of GDP
The deficit in the state finances has fallen to as low as 2% of GDP for 2021, which would make it one of the smallest deficits in the OECD, according to Davy.
The stockbroker’s chief economist Conall MacCoille bases his calculations on expectations that the general government deficit will come in just under €9 billion, or 4% of gross national income.
“The upshot is that the government has plenty of room to extend Covid-19 supports if required,” he pointed out.
The Exchequer returns for December, published last evening, showed the exchequer balance was €7.3 billion in 2021, well down from €16.9 billion in 2020.
That was on the back of buoyant tax receipts with total tax revenue coming in at €68.4 billion, up 20% on the €57.2m in 2020 and the €59.3 billion collected in 2019.
Peter Vale, tax partner with Grant Thornton, told Morning Ireland that the outcome far exceeded expectations and raised the prospect of some loosening of the purse strings by the government.
“From a budgetary position, it potentially reduces the need for further borrowings, or introduces the spectre potentially of tax cuts later this year in budget 2023. That remains to be seen, but the figures were really good,” he said.
On the corporation tax front, receipts were exceptionally buoyant, up 30% to €15.3 billion in 2021.
Peter Vale pointed out there has been talk of threats to this heading for over five years now and in that period the country has managed to double the corporate tax take.
However, he acknowledged that with changes coming down the tracks and the introduction of a minimum 15% global rate scheduled to take effect nest year, there were uncertainties, but they may not necessarily work against us.
“The Department has to be prudent and they are presuming there will be a dip, but if there’s an increase in the rate to 15%, that’s going to lead to an increase in our tax revenues and, yes, we might lose some of that revenue to market jurisdictions but overall globally you’re going to see companies paying more corporate tax and we’re going to have a share of that increase so my view we will see that 15 billion plus maintained, certainly in 2022,” he explained.
He said that was dependent on companies staying in Ireland and that they remain profitable, factors that were largely outside of our control.