The lifting of a scare over an unexpected shortfall in corporation tax revenues could pave the way for some sort of giveaway budget even as the gloom over a no-deal Brexit outcome deepens, a leading economist has said.
Alan McQuaid was speaking after the latest monthly exchequer returns to the end of June showed that for the most part the Government’s tax revenues were back on track, following an unaccustomed shortfall in corporation tax revenues in the previous month.
At €4.96bn, the Government collected €126m more in tax revenues than it had anticipated for June, which meant that cumulative tax revenues for the first six months were by-and-large back on target — undershooting the Department of Finance’s target for first-half revenues by a meager €127m.
Corporation tax is one of the top four revenue-rich sources for the Government and for the first time in years had significantly underperformed in May.
Its rebound in June, which is a major month when large companies pay their tax bills, helped cap a good first half of the year for all tax revenues — which were up almost 7% to €26.67bn from a year earlier, said Mr McQuaid.
That performance could pave the way for “a generous” pre-election budget in October, he said.
But the increased chances of a no-deal Brexit at Halloween as Boris Johnson remains the bookies’ favourite to win the Tory Party contest to become the next British prime minister will continue to cloud the preparations of Finance Minister Paschal Donohoe for the budget in early October.
“The tax revenue figures reflect a good first half of the year but the second half will be weaker and uncertainty will be increased because the budget comes before the Halloween Brexit deadline,” he said.
Nonetheless, Mr McQuaid predicted “some sort of giveaway” in October but that Mr Donohoe would likely heed the warnings of watchdogs and economists and hold back funds for a supplementary budget to mitigate the effects on the Irish economy should the new British leader opt to crash out without a deal in late October.
“Overall, the mid-year exchequer position on the tax receipts front is broadly positive, with legitimate concerns last month on the corporate tax front allayed somewhat by more positive June figures,” said Peter Vale, tax partner at Grant Thornton.
In June, the other three major tax sources were mixed. Income tax revenues were on target in the month and brought in a cumulative total of almost €10.5bn for the first six months, an increase of 7.7% from the first half of 2018.
Vat revenues in a non-Vat payment month fell short of target but at €7.44bn were also largely on target for the first half of the year, and were up almost 5% from a year earlier.
And excise duties also underperformed slightly in June but at €2.92bn easily beat their target for the first six months.
They have ballooned by over 18% from a year earlier.
"Almost all tax headings have recorded annual growth, reflecting the broad-based nature of the recovery,” Minister Donohoe said.
Meanwhile, CSO figures showed unemployment was unchanged at 4.5% in June from May, but down from 5.9% in June 2018.