In a month where corporate tax receipts typically make up a small proportion of overall receipts, a high-level of corporation tax was collected this month. I won’t be the first or last person to say this, but we must use this capital to invest and insulate from challenges we face as a country. It’s why it’s welcome to see that spending on capital infrastructure is up by 21% compared to last year.
It’s more common to focus on VAT in July and it is still important as it’s a bell-weather of consumer confidence. All things being equal, higher VAT receipts tend to reflect more money being spent in the economy at a particular time and that’s what we’re seeing today.
VAT receipts account for 3.3 billion in July, and €14.85 billion in the year to date (€684 million or 4.8% more than the same period last year). This continued rise is a positive sign of resilience in consumer spending despite an uncertain trading environment. It is also supported by income tax receipts rising and corporation tax remaining high.
VAT will likely feature prominently in Budget conversations as the hospitality sector look to confirm the rate cut for their industry to 9%. The Government’s focus on fiscal cautiousness is commendable and it’s worth noting that a cut in the rate would cost up to €1 billion, or up to two-thirds of the overall €1.5 billion Budget 2026 tax package. The latest Deloitte insolvency data also highlights that due to a range of challenges facing the sector from high energy costs to issues sourcing staff, that a VAT rate cut would likely make little difference to insolvency rates in the hospitality sector.
Capital taxes are also performing strongly both in July and year-to-date, which is a positive sign that suggests an increased level of activity in the economy.
At the end of July, the EU and US announced a framework of a trade agreement which will provide some certainty for planning but at the cost of 15% tariffs, which will have implications for the Budget. We also know that the Summer Economic Statement, the blueprint for the Budget, came with the caveat that it would need to be re-assessed in the event of an increase in tariffs above the baseline 10%. With recent commentary from the US suggesting a 15% tariff rate for pharmaceuticals may not be locked in, Ireland may not have the certainty it would like to frame Budget 2026. In a world spinning fast, a week is a long time in both politics and economics.