Tax boost for State's finances despite Covid lockdown costs of PUP and wage subsidies

Finance Minister Paschal Donohoe said the tax revenue figures were "a sign of cautious optimism for what the year will bring", but gave little away about the outcome of the Government budget deficit ahead of its update for the EU.                   

The exchequer collected much more than once expected from income taxes and Vat, bolstering optimism over the State's finances despite the increased spending on unemployment and wage subsidy schemes due to the prolonged level 5 restrictions.

The latest exchequer returns for tax and spending showed the Government collected €13bn in tax revenues in the first three months of the year, which was slightly ahead of the first quarter in 2020 despite that period including two months before the onset of the pandemic.      

Two of the four principal sources of revenues, income taxes and Vat, outpaced all expectations by posting increases. 

Income taxes rose in the first quarter by 4% to around €5.9bn, reflecting the huge amounts spent on pandemic unemployment payments (PUP) and the wage subsidy schemes that have helped support household incomes. 

Significantly, Vat revenues in the quarter, at €4.5bn, were up 8.4% from a year ago, helped by many households switching to online purchases with the closure of non-essential shops. 

Total gross voted spending rose by €2.5bn to €19.5bn, reflecting that huge spending on PUP and the wage subsidy schemes.   

Finance minister Paschal Donohoe told reporters the tax revenue figures were "a sign of cautious optimism for what the year will bring", but gave little away about the outcome of the Government budget deficit ahead of its update for the EU.                     

Expenditure minister Michael McGrath said the €19.5bn in spending in the first quarter "starkly" reflected the effects of the pandemic. 

Spending since the crisis included €12bn on income supports, including €6.75bn on PUP and €5.2bn on the two wage subsidy schemes, and an increase of €3bn in health spending, Mr McGrath said.

All Covid-related supports allocated in 2020 and 2021 amount to €28bn, he said.   

Mr McGrath said the payments under the PUP and wage support schemes mean that funds "will be largely accounted for if not fully spent as we approach the end of quarter two", but added that the economic recovery is expected to get under way as the vaccines are rolled out. He again pledged the PUP and wage subsidy supports would face "no cliff-edge". 

Peter Vale, tax partner at Grant Thornton, noted the "remarkable" performance of tax revenues, adding "although unquestionably, Government supports are propping up Vat receipts in particular".