Rising Vat revenues ease fears on economy

A big improvement in the amount of Vat the Government collected last month has helped assuage some fears about the outlook for the economy.

Exchequer figures published yesterday showed that the Vat revenues jumped in January to €2.31bn, a rise of 10.2% from January 2016.

That may boost hopes that consumer spending will hold up this year even as the potential threats to the economy loom closer with the start of Brexit talks between the UK and Brussels.

However, at €467m, the revenues the Government collects from excise duties were down €33m from a year earlier. With Vat revenues having fallen consistently short of expectations in 2016, concerns mounted that the fall in sterling against the euro was driving consumers to make purchases online or in the North. At the same time, corporation tax revenues had consistently over-performed.

Corporation tax brought in €64m in the first month of the year, an increase of €40m in the year, and continuing the trend of very strong performances for company taxes over the previous two years. At almost €4.77bn, total tax revenues were up 6.1% from a year earlier.

That helped the exchequer record a surplus of €1.47bn, an increase of €272m compared with January 2016.

“Despite concerns that Christmas spending was less buoyant than expected, Vat receipts surged over the Christmas period, indicating strong consumer spending. Consumers appeared to set aside Brexit and other concerns,” said Peter Vale, tax partner at Grant Thornton.

Overall, tax receipts in January were 6.1% ahead of January 2016, with broadly all tax heads performing well. However, Irish households carry some of the highest debt burdens in Europe, Central Bank figures published yesterday showed.

Though debt levels had fallen steeply since the financial crisis, only households in Denmark, the Netherlands, and Sweden have more debt than households here.

Irish household debt stood at an aggregate €145.3bn, which in terms of population amounts to almost €31,100 per citizen. Debt here stood at almost 145% of disposable income in the third quarter of 2016, higher than debt levels in the UK, Finland, Portugal and Spain, and compared with the eurozone average of just over 90%.

Slovenia, Croatia, the Czech Republic, and Italy have among the lowest levels of household debt in Europe.

However, house price increases helped boost household net worth to €661bn, representing an average of €141,427 for each citizen, according to the Central Bank figures.

Alan McQuaid, chief economist at Merrion Capital, said that the still-elevated levels of household debt probably explains why consumer spending had been fragile, despite the economy expanding at a strong rate.

Holding the fourth highest household debt in Europe increases the risks facing the economy from Brexit and the potential sharp cuts in US corporation taxes, he said.

The monthly consumer survey by KBC Bank and the Economic and Social Research Institute showed a mixed picture, even as it found consumer sentiment rose last month.

“Our sense is that sentiment readings may remain choppy in coming months reflecting an Irish consumer who is facing into a quite uncertain 2017,” said Austin Hughes, chief economist at KBC.


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