Central Bank Governor Gabriel Makhlouf has warned Minister for Finance Paschal Donohoe about the vulnerability of VAT as a source of revenue, as the Government plans to cut the rate of the tax for the hospitality and retails sectors.
The Coalition promised to change the tax for those sectors in the Programme for Government following commitments given during last year’s General Election.
However, in his annual letter to the Minister for Finance ahead of Budget 2026, Mr Makhlouf said Ireland’s “VAT base appears relatively narrow by EU comparison owing to both changes in the composition of household expenditure over time as well as the widespread application of reduced and zero rates to a variety of goods and services.”
The Governor also warned about the “narrowness” of income tax as a source of funds.
He said the tax was “highly concentrated with 8.5% of the highest-income taxpayers in Ireland accounting for 56% of aggregate personal income tax revenue (income tax and USC).”
Mr Makhlouf also repeated the Central Bank’s concern about the Government about relying on excess corporation tax.
He said if those receipts were to fall at a time of a reduction in multinational activity and a fall in investment it could result in a budget deficit of 4% in national income by 2030 in the absence of corrective action.
Mr Makhlouf also pointed out taxes had increased significantly over recent years “well above long run historic averages.”
“This resulted in Exchequer tax revenue increasing by 42% since the end of 2021 averaging growth of over 14% per annum,” he added.
Article Source – Central Bank chief warns Finance Minister of VAT ‘vulnerability’