Brexit won’t hit surging exchequer this year

Tax receipts are booming, new exchequer figures have shown. 

Any fallout from the UK decision to quit the EU on government finances here will likely take years to play out.

The tax and spend figures for the first six months of the year showed the exchequer is taking in much more in taxes than anticipated when Finance Minister Michael Noonan delivered his budget late last year.

Three of the ‘big four’ tax sources continued to deliver though a question remains about the performance of Vat. 

On the face of it, the Fine Gael minority-led government will have ‘fiscal room’ to deliver on any plans to cut taxes in 2017, when it delivers its budget in October.

Analysts have warned, however, about the uncertainties created for the Irish economy should the Brexit vote lead to a recession in Britain in 2017.

Tax receipts surged to €22.52bn, up €1.9bn or 9.2% in the year, as the exchequer took in €742m or 3.4% more in revenues than it anticipated as this stage in the year. 

With retail sales figures published last week showing car sales surging and consumers returning to the shops, Vat receipts should be booming. 

However, Vat receipts continued to underperform. 

Noting that June is a so-called non-Vat month for collecting the tax, the Department of Finance said other consumption-related taxes, including excise duties, over-performed.

Excise taxes took in just over €400m more than anticipated in the first six months, though some of this was down to the early payment of tobacco duties.

Vat receipts were up 3.7% in the year to €6.22bn, but that is €231m less than the exchequer had anticipated.

Corporation tax caused no such concern. 

For a second year, company taxes are beating assumptions, with the exchequer taking in €505m more than it thought it would have in the kitty last October.

Overall, corporate taxes totalled almost €3.18bn at the half-way stage. 

That’s up by more than 15% from last year, and almost 19% more than anticipated.

On the flip side of the finances, the expenditure figures showed net overall spending, at over €20.78bn, was more or less on target. The Department of Health was again the largest “over-spender” of 16 spending departments. It overspent its budget by €137m at the half-way stage.

Income taxes raised €8.77bn through the end of June, up 5.6% in the year. They were exactly on target. 

Following the surge in GDP growth of 7.8% last year, the economy is likely to power ahead this year. The Brexit vote has raised the spectre of a recession in the UK, however.

For over two years, the Irish economy was boosted by the euro’s plunge against sterling which made selling into Britain extremely profitable for Irish firms. 

The Brexit vote has unwound some of those advantages, and the risk of a UK recession would raise a serious risk to the Irish economy.

Ahead of the UK vote, Irish manufacturing had resumed a healthy pace of expansion and consumer spending was growing. 

Finance officials said it was too early to say how the Brexit fallout would affect Government revenues. 

Vat tax revenues could leak to the North if sterling remains low against the euro.

“If it [Brexit] has an impact, it may not be this year,” said Conall MacCoille, chief economist at Davy Stockbrokers.

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