Noonan downplays Greek impact on Irish economy

Minister for Finance Michael Noonan said the risk to the Irish economy from the uncertain situation in Greece was “second-round” in nature as direct trade and financial links between the two countries were small.

While he did set out the risks in a reply to a parliamentary question from Fianna Fáil finance spokesman Michael McGrath, the Minister said Greece had become an outlier in recent months.

“As financial markets in Greece have been adversely affected through declines in the stock market, capital outflows and increases in bond yields, elsewhere in the euro area markets have been broadly stable,” Mr Noonan said.

The reply was published as exchequer returns for the first half of the year showed that tax payments were some €800 million ahead of target.

The Department of Finance show that the State collected €20.62 billion in tax between January and June, €2.16 billion more than in the same period last year.

Greek uncertainty

Amid uncertainty over the fate of Greece, a note published by the European Central Bank “bond market contact group” (BMCG) shows that it had impromptu phone conferences on Monday after Athens called a referendum on the bailout.

Although Italian and Spanish borrowing costs have risen, there has been no major impact as of yet on Irish borrowing costs.

“Notwithstanding the constructive initial market reaction, BMCG members suggested to remain cautious given that: (i) there are many challenges for Greece over the next few weeks,; and (ii) many market participants are still in a wait-and-see mode,” said the ECB note.

The exchequer figures show that an unexpected advance in corporation tax payments in the first half of the year accounted for €606 million in the improvement over budget­day forecasts, €170 million of which came from once-off payments from an unspecified number of firms.

Net voted expenditure in the half year reached €20.42 billion, 1.5 per cent or €304 million below profile and €107 million or 0.5 per cent lower in year­on­year terms. Health spending was €33 million, 0.5 per cent above profile, due to hospital and drug costs and welfare spending was €72 million or 0.7 per cent above profile due to spending on the job seeker’s allowance.

The exchequer had a €292 million deficit at the end June, down from €4.93 billion one year ago. “The improvement in the exchequer balance is driven by increased tax and neonates receipts and a number of one-off transactions,” the Department said.

In a statement, Mr Noonan said the €478 million increase in income tax collected, achieved despite reductions in income tax and the USC, provided evidence of the number of jobs being created.

Once-off transactions included €410 million in receipts from the sale of Permanent TSB contingent capital notes and €97 million from the sale of shares in the institution. A further €1.63 billion came via a transfer from the National pension Reserve Fund.

“Without the one-off transactions the improvement in the deficit would be €2.7 billion,” said the Department.

While the jump in tax collection marks big improvement on 2014, the Department emphasised that €285 million in corporation tax receipts were delayed from June into July last year as a result of a new European payments system. “Taking this into account, tax receipts are up €1.87 billion (10 per cent) year­on­year,” said the Department.

Delayed payments

Adjusting for delayed payments last year, corporation tax receipts are up €724 million or 35.5 per cent year­on­year. “This reflects an improved trading performance across the board and some one off factors,” the Department said.

Income tax receipts rose €478 million year­on­year to €8.31 billion, “slightly above” profile by €54 million or 0.7 per cent. “For the month of June, income tax receipts amounted to €1.27 billion, which were exactly on profile,” the Department said.