Question mark over buoyant tax revenues

Question mark over buoyant tax revenues

As the news from the eurozone continues to deteriorate, with the latest prognostications for the German economy looking particularly concerning, Irish economic data releases continue to paint a pretty positive picture of what is happening here.

The proviso for Ireland, now, is that while the real economic indicators are still generally positive, both consumer and businesss entiment indicators are striking a more cautious note.

Obviously, the continued uncertainty around Brexit is the key factor driving this caution, but a quick perusal across the world of global geo-politics and economics would also give grounds for caution.

The obvious hope, here in Ireland, is that the negative sentiment indicators do not translate across into real economic activity.

To date, that is not happening,except for the new car market, where trading conditions continue to be very challenging.

If one gauges the success of a government on the health of the labour market, and plenty of people would be prepared to blame the Government for a poor labour market performance, then the current Government is doing a fine job.

Last year, employment reached the highest level ever recorded in this country, and it has continued to expand since then.

More tellingly, the number of people unemployed is also continuing to trend strongly downwards.

In October, the number of people unemployed fell to 117,300, which represents a decline of 239,300 since the highs of 2012.

The unemployment rate fell to 4.8% of the labour force, down from a high of 16% in 2012.

This is the lowest level of unemployment recorded since the crash of 2007 and 2008.

In the early part of the last decade, Ireland was referred to as a “mean, lean, green, job-creating machine”, and this title certainly seems to be apt once again.

Of course, it is not the role of Government to create employment, but rather to create an environment where entrepreneurs are willing to invest in business and create employment.

This certainly appears to be working here, and although I have certainly detected a greater level of caution on the part of employers in hiring labour as a result of the paralysis generated by Brexit, there is still pressure to take on extra labour to deal with strong demand conditions.

The export sector is leading the way in this regard, but the more general picture is also still positive.

Perhaps there is no greater manifestation of the strength of an economy than what is happening on the tax revenue front.

For every economic action engaged in, tax must be paid for the privilege of doing so and the more action we engage in, the more tax we pay.

The latest exchequer returns for the first 10 months of the year show that tax revenue buoyancy is still a feature.

The exchequer has collected €44.9bn in tax revenues so far this year, which is €2.8bn — or 6.7% — higher than the same period last year and is €706m higher than was budgeted for.

Corporation tax continues to be the star performer, with €6.9bn collected so far this year, which, in turn, is €660m more than was budgeted for.

This year looks set to see another record tax take from the corporate sector, but the only question is the sustainability of this expanding tax base.

Nobody is too sure of the answer, but a cautious approach to spending still seems the most prudent approach to pursue.

On the Brexit front, the formal commencement of the UK general election campaign has done nothing to dispel the intense uncertainty about the eventual Brexit outcome.

Many remainers on the Tory side are opting out of politics and letting the door open for hard Brexiteers, which is not good.

On the other hand, the Liberal Democrats are polling strongly, but under the UK electoral system, this would be unlikely to translate into an equivalent number of seats.

One thing that is clear is that the UK prime minister is fighting an election campaign against the background of a much weaker economy, which is always dangerous.

It is also clear that the economic policy platform of Boris Johnson, including his Brexit policy, is devoid of good sense. The coming weeks promise to be very interesting.

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