Revenues rise but income tax still below targets

Revenues rise but income tax still below targets

The Government took in over €50.7bn in tax revenue in 2017 — nearly €3bn, or 6%, more than in 2016, despite income tax and Vat receipts falling short of targets, writes Geoff Percival.

Gains made from the sale of a portion of the State’s shareholding in AIB also helped Ireland record a surplus of over €1.9bn last year, which compared to a deficit of just over €1bn in 2016.

The strong tax showing came in spite of a weak December, which saw a 2.2%, or €76m, shortfall against the Government’s initial targets. December’s under performance was mainly due to anticipated weak excise duty receipts, which came in €175m short of target.

Overall, however, tax revenues amounted to almost €3.45bn last month, 8.5% up on a year-on-year basis.

December was also a non-Vat month, with receipts last month €37m below target. At nearly €1.73bn, income tax, for the month, was 0.9% ahead of expectation and 6.3% up on the corresponding month in 2016.

Corporation tax also had a good December, with receipts running at €548m, nearly 20% ahead of expectation and almost 90% up on a year earlier.

As well as being up on an annual basis, the overall 2017 tax take of €50.7bn was 0.2%, or €116m, ahead of target.

While all tax headings were up on the previous year, income tax, Vat, and excise missed their annual targets.

At just over €20bn, income tax receipts were up 4.4%, year on year, but 1.2% short of target. Vat receipts, at €13.3bn, were up 7.1% for the year, but were 0.5% below expectation.

Regarding income tax receipts still lagging behind target despite an outperforming labour market, Grant Thornton’s Peter Vale said “a suggestion that lower-paid part-time roles might explain the discrepancy”.

Corporation tax amounted to €8.2bn for the year, 6.3% ahead of target and nearly 12% up on 2016 levels. There is a growing concern that corporation tax, which makes up 16% of total tax revenues, is being over-relied upon to drive growth.

“The volatility of corporation tax adds uncertainty to the Government’s revenue base as demographic and infrastructure pressures significantly add to spending in the coming years,” said Davy economist David McNamara, who added that Ireland’s budget deficit should fall to 0.2% of GDP this year.

“The US tax reform package, with its ‘carrot and stick’ approach to luring jobs back to the US, creates some uncertainty for Ireland,” said Mr Vale.

“While we believe that both countries can benefit from the changes, it will be some time before the full impact is known.

“Our view is that the corporation tax numbers are sustainable, notwithstanding the recent US tax reform package and the contribution made by large US multinationals to the corporate tax take,” he said.

Finance Minister Paschal Donohoe said the 2017 figures represent “a very solid performance” which “clearly underscores the improving economy”.

“Reflecting our broadly based recovery, all tax headings have recorded annual growth, with overall receipts now 60% above our 2010 low point,” he said.

“This fiscal outturn provides a good platform to start 2018. However, we remain vigilant to the potential challenges we face, including Brexit. We will continue careful management of the public finances.”

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