caution needed – The Irish Times


Record public treasury figures for July show the state collected 43.5 billion euros in taxes in the first seven months of the year, 8.3 billion euros more than at the end of the year. same period in 2021. With inflation rising and energy prices still to come, this extraordinary comeback sparked a clamor in government and opposition for more to be done in the September budget. in response to the cost of living crisis. This is unavoidable, but caution is called for and measures must be carefully calibrated to help the most vulnerable households.

The July figures result from large increases in corporate tax payments as well as income tax and VAT. The Treasury’s €5 billion surplus contrasts with the €5.7 billion deficit a year earlier. The €10.7 billion turnaround was attributable to both growth in tax revenues and reduced spending thanks to the unwinding of Covid-19 supports which added €33 billion to the national debt in two years. .

But just as the health emergency recedes, these numbers come amid acute geopolitical and economic turmoil stemming from Vladimir Putin’s war on Ukraine. The threat of an interruption in Russian gas supplies to the EU raises the prospect of a winter crisis that would further increase fuel prices. It would raise the prospect of a recession in Germany if its heavy industry were starved of power, a prospect that would bode ill for the wider European economy and for Ireland. Forecasts of a recession in the UK also threaten the outlook here.

Although July’s results suggest that public finances are in a good position for the time being, it would be wrong to take too much comfort from them. These are exceptionally uncertain times, with multiple risks weighing on the outlook and few signs on the horizon to ease tensions.

Yet the record yields invite comparisons. Public finances bottomed out in 2010, when the last financial crisis was at its height. That year, the state collected 31.75 billion euros in taxes. This sum had fallen from 47.25 billion euros in 2007, the highest return in a single year before the crash.

It is not necessary here to return to the serious political and economic crisis triggered by this budgetary collapse. But it’s worth noting that seven months of tax collection this year has brought revenue back to a level close to that collected in a full year just before the financial crash.

The dynamic is different this time around, but we’ve already seen how quickly problems can develop. Just as the value of stocks can go up or down, so can tax collection and government spending.

Room for maneuver has opened up to go a little further than the package of 6.7 billion euros promised in the budget for the cost of living, in particular via additional one-off measures. But the July returns are just a snapshot in a time of extreme volatility.

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