Paschal Donohoe gets exchequer boost but Brexit could still crash his budget

Tax revenues continued to pour into the exchequer last month, easing the pressure on Paschal Donohoe even as a snap UK election and a crash-out Brexit could still undo his October budget plans, analysts said.

The latest exchequer returns showed the Government collected €35bn in tax revenues in the first seven months of the year, up by over €2.6bn, or 8%, from the same time a year earlier.

In August alone, it took in €3.1bn in tax revenues, some €373m, or 14%, more than collected in August 2018.

However, stock markets reflected the fears that Britain will still head out of the EU without some sort of deal.

Ahead of the late evening vote in the House of Commons, Irish bank and property shares which are heavily exposed to a hard Brexit fell sharply.

AIB and Bank of Ireland fell by 2% and 1.5%, and builder Cairn Homes slid by 2.5%.

However, Dalata Hotel shares rose 9% on better-than-expected earnings.

Corporation tax and excise duties -- two of four main revenue-rich sources for the exchequer -- posted doubl-digit increases over the first seven months, and Vat and income tax revenues were up by 5% and 8% in the same period, despite concerns about how spending taxes would perform as Brexit looms.

Conall Mac Coille, chief economist at Davy, said that the latest figures showed that revenues were flowing in and were little affected so far by fears of a crash-out Brexit and political uncertainty in Britain.

At any other time, the numbers would set the scene for a favourable budget, Mr Mac Coille said.

However, he said, these were not normal times and the finance minister will have to weigh the effects that Brexit will have on Government revenues in 2020 and frame his October budget in the next few weeks with that in mind.

Austin Hughes, chief economist at KBC Bank, said the August figures will "reassure" Mr Donohoe that the economy is not going astray any time soon, with increases in jobs tapping an expanding economy even though consumer remains cautious, as shown by the more modest rises in spending tax revenues.

"But a crash-out Brexit would put these numbers in a totally different light," Mr Hughes said.

Peter Vale, tax partner at Grant Thornton, said the numbers mean that Mr Donohoe will have room for modest tax cuts in his budget next month.

But how Brexit plays out will effectively limit Mr Donohoe's measures.

"In summary, uncertainty remains over how the exchequer balance will look at year-end, meaning the scope for any significant tax cuts in October looks most unlikely," said Mr Vale. Ahead of the Commons vote, sterling continued to reflect the huge political and economic uncertainties facing Britain, as many analysts saw the growing likelihood of an early general election.

After a volatile session, the UK currency ended slightly higher against the dollar at $1.0208, and the euro at 90.70 pence, as currency markets bet the risk of a hard Brexit at Halloween had receded somewhat.

The Irish Congress of Trade Unions said it wants Mr Donohoe to support workers who are temporarily laid off because of Brexit and other to bring in schemes to preserve employment in industries where "jobs are most at risk from Brexit".