Vat revenues brings comfort to Finance Minister Donohoe over Brexit budget fears

Tax returns for July will bring comfort for the time being to Paschal Donohoe and his October budget preparations despite Brexit fears, commentators said, as Vat and corporate tax revenues brought in more than was anticipated in the month.

Vat revenues brings comfort to Finance Minister Donohoe over Brexit budget fears

Tax returns for July will bring comfort for the time being to Paschal Donohoe and his October budget preparations despite Brexit fears, commentators said, as Vat and corporate tax revenues brought in more than was anticipated in the month.

Overall tax revenues came to almost €5.3bn in July, meaning the exchequer collected €239m more than was anticipated in the month.

Corporation tax was a star performer and showed signs that receipts will exceed Government targets again this year, as they pulled in €437m alone in the month, almost €270m more than anticipated.

And for the first seven months of the year, corporation revenues are now running at €4.6bn — around 5% more than expected at this stage of the year.

At €2.3bn, Vat revenues brought in €125m more than anticipated in July, reassuring the Government that the threat of newly-elected British prime minister Boris Johnson to crash out of the EU at the end of October has yet to affect Irish spending tax revenues.

Of the big four tax sources, however, income tax revenues at over €1.7bn in July fell short by 7.6%, but excise duties at €505m were all but on target for the month.

Peter Vale, tax partner at Grant Thornton Ireland, said that, despite the strong performance, Vat receipts would likely be hit as the Brexit deadline looms closer.

“At this point, it’s difficult to see Vat receipts not being adversely impacted over the next few months, regardless of the Brexit outcome,” he said.

Business group Chambers Ireland chief executive Ian Talbot said Mr Donohoe should strike a prudent budget in October.

What we’re seeing in this month’s returns is a reflection of the strength of the economy to date.

"However, it’s the state of the economy in the coming months that is worrying businesses in our network,” he said.

Signs of investor jitters were evident in currency and stock markets after US president Donald Trump threatened to escalate the trade wars with China, with the Ftse 100 and Euro Stoxx index plunging by up to 2.5%.

“The 10-year US Treasury yield has since dropped by around 15 basis points, to under 1.90%, as investors have factored in more monetary easing by the Fed.

"They are now fully pricing in a 25 basis point cut to the fed funds rate in September, and around 85 basis points of easing in total by the end of 2020,” said Capital Markets in London.

“This presumably reflects concerns about the impact of the tariffs on the US economy, as well as the [Fed’s] willingness to loosen policy based on global developments including the trade war,” it said.

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