Tax revenues growth to ease path of new government

The incoming government will likely enjoy a financial honeymoon as tax revenues continue to flow into the exchequer’s coffers.

Tax and spending returns for the first two months of the year showed tax revenues were up by over 7.1% from a year earlier, to more than €7.21bn.

Spending slowed over the same period. The figures show that three of the four main tax heads — income tax, Vat and excise duties — were up from a year earlier.

Although the overall receipts were below “profile”, which means they fell short of the monthly targets set by the Department of Finance, the figures will build confidence the government will easily reach its 2016 tax revenue goal.

Some leading analysts already believe just two months into the year the budget arithmetic is already falling favourably into place for next October.

The Government set a budget target for tax revenue to increase by 5.8% this year, but Conall Mac Coille, chief economist at Davy Stockbrokers, said that target was set in early October before the exchequer took in the huge bounty in corporation tax receipts in late 2015.

That makes the 2016 target much easier to reach.

“Whoever is the next minister for finance will probably have more cash to give away in October,” said Mr Mac Coille.

Corporation tax receipts — which recorded an unexpectedly spectacular increase last year— were down in the year, though payments from the small handful of big corporations that make up the bulk of Irish company taxes tend to come in later in the year.

At over €3.13bn, the haul from income tax was 8.7% higher than at the same stage last year. Significantly, income tax receipts exceeded the exchequer’s profile despite the budget tax cuts which took effect in January, Mr Mac Coille said.

Vat taxes rose by 1.8% from a year ago, to over €2.4bn.

Repayments, however, contributed to Vat falling short of profile in the month.

February is not a month when Vat collections are made.

Retail sales figures published on Monday, which showed an annual 10.3% leap in the volume of sales in January, and an increase of 6.4% when car sales are excluded, may provide confidence the Vat tax receipts will increase in the months ahead.

The Department of Finance said excise duties at €946m over the first two months marked “a very strong” rise of 21.6% from a year ago.

Excise duties were boosted by the increase in car sales and Vehicle Registration Tax revenues.

Other small tax sources showed year-on-year increases, including Local Property Tax receipts which were ahead of profile.

Spending overall was down in the year, at €6.56bn, while capital expenditure, at €287m was below profile.

February’s tax figures were “very strong”, said Alan McQuaid, chief economist at Merrion Capital, and should provide comfort to any incoming government.

However, warning signs were contained in the latest purchasing managers’ survey, Mr McQuiad said.

The survey showed the growth in output from Irish factories slowed last month.

That may indicate the effects of the financial markets turmoil and the troubles of the world economy are starting to affect Ireland, he said.

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Exchequer Returns show Ireland is half a billion better off than a year ago https://t.co/OrE1X46BQ7 pic.twitter.com/DbkcfsIEpI

— breakingnews.ie (@breakingnewsie) March 2, 2016