No room for budget largesse in tax revenues

Income tax receipts have continued to bring in less than anticipated for the exchequer, while corporate tax revenues have outperformed again, presenting a mixed bag for Finance Minister Michael Noonan ahead of his budget next week.

No room for budget largesse in tax revenues

September’s tax and spend figures were published on a day the Department of Finance cut its growth forecasts for the economy this year to 4.2% from the 4.9% expansion it had projected in the summer.

It forecasts GDP will rise 3.5% in 2017, down from the 3.9% growth it had projected previously.

Analysts said Mr Noonan therefore has little room for any largesse in spending increases and tax cuts in his budget plans, though at first sight, the exchequer figures provide a reassuring picture.

Tax receipts rose in the first nine months to €33.4bn, up €1.78bn, or 5.7%, in the year, as the exchequer took in €484m, 1.5% more in revenues than it had anticipated at this stage in the year.

However, the performance of some of the ‘big four’ tax heads continue to raise concerns about whether Government finances can weather any major external shock, including washback from Britain’s exit from the EU.

The figures show a puzzling underperformance in income tax, even with more people in work as the unemployment rate falls to 7.9%.

Officials at the Department of Finance said one explanation may be modest wage increases which affect the amount the exchequer takes in income taxes overall.

Including receipts from the universal social charge, income tax revenues, at €12.95bn, brought in €14m less than anticipated in the month, and were short of target by €114m across the full nine months, the figures show.

Income tax receipts were nonetheless up 4.1% from the same period last year.

Vat receipts were slightly above target in September, which is a designated month for Vat payments, but fell short of target by €278m, or 2.7%, across the first nine months. At just over €10.19bn, Vat receipts are up over 5% for the full nine months from last year.

Weak tobacco revenues meant excise duties took in €67m less than was anticipated in the month, but were ahead of target by €211m for the full nine months, said the department.

Corporation tax receipts again provided the bright spot, taking in €136m more than was anticipated in the month.

Many analysts have long warned that the Government cannot rely on corporate tax receipts because they are subject to the whims of multinationals re-arranging their tax affairs by shifting intellectual property rights into Ireland.

The Irish Examiner reported last month that the big surge in recent revisions to Irish GDP in 2015 was almost completely due to Apple’s tax arrangements.

“It is a mixed bag,” said Conall Mac Coille, chief economist at Davy Stockbrokers.

“Revenues are ahead slightly in the month, but again that is due to corporation tax,” he said, adding that the Central Bank, ESRI, Irish Fiscal Advisory Council, “and almost everyone else” said it would be unwise in future years to rely on corporate tax revenues.

Amid the potential threat from Brexit, Alan McQuaid, chief economist at Merrion Capital, said there is no room for largesse in the budget.

At €31.47bn, total net expenditure was below target for the first nine months, but up 2% from last year.

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