Analysts: Exchequer on target but risks ahead

Government tax revenues are on target, but analysts warn fears about the global economy and jitters about the UK staying in the EU could yet disrupt finances in the months ahead.

Tax and spending returns for the first three months showed tax revenues increased more than 6.4% from a year earlier, to more than €11.13bn. 

The increase remains above the increase of 5.8% for the whole of 2016 Finance Minister Michael Noonan set as the key target in his budget speech last October.

Despite the Department of Health again spending more than allocated, overall current spending was within budget in the quarter. 

The figures show that two of the four main tax heads — income tax and Vat — brought in less than was anticipated in the quarter, while corporation tax and excise duties brought in significantly more.

Timing and repayment issues continue to affect the quarterly figures, however. 

At €654m, the exchequer collected substantially more than anticipated from corporation taxes over the first three months, but the reason was down to just one unnamed large multinational firm paying a tax bill earlier than expected. 

The Department of Finance said corporation taxes will perform to target through the rest of the year. 

Last year, corporate taxes unexpectedly flooded into the Government’s coffers.

At over €3.89bn, Vat revenues appear to have underperformed for a second successive month — but a repayment in February continues to distort the figures. 

CSO figures published last week showing retail sales grew by an annual 11% in volume terms and 8.7% in value terms in February suggest consumers are spending more and Vat taxes should rise at a fast pace too. 

Again, timing issues appear to have affected income taxes, which although increasing 2.7% to €4.35bn in the year, underperformed its “profile” target. 

Overall, receipts were 1.1% ahead of profile, meaning the exchequer took in €119m more in tax revenues than it anticipated.

Tax receipts were 2.1% ahead of profile, if a delayed payment received on April 1, are included.

The figures suggest the Government will reach its budget target for a 5.8% increase in tax revenues for the whole of 2016.

Mr Noonan set out a target in his Budget 2016 speech in October to collect over €47.22bn in tax revenues in 2016. 

In the coming weeks, the Government will update its economic forecasts. 

The Central Bank last week increased its GDP growth forecast this year, to 5.1%, and the Economic and Social Research Institute last month projected GDP will grow 4.8%. 

However, economists warn about a number of headwinds, including the UK vote on Brexit on June 23, that could seriously disrupt the exchequer targets this year.

“We note there are a number of external — the Brexit referendum and the US Presidential election —and internal — ongoing domestic political uncertainty — risks that could have an impact on Ireland’s fiscal performance over the remainder of 2016,” said Philip O’Sullivan, chief economist at Investec Ireland.

It is too early to say if revenues will again sharply increase this year, but economic indicators such as employment and retail sales so far point to a healthy outcome, said Conall Mac Coille, chief economist at Davy Stockbrokers.


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