Exchequer returns ahead of target despite weak income tax receipts

The State’s finances remain ahead of target for the year but income tax and VAT continue to underperform amid worries about the uncertain economic outlook.

The latest exchequer returns for September – the last before next week’s budget – show tax receipts are currently €484 million above profile, albeit the cushion between actual and targeted receipts continues to shrink.

The figures show Government collected €33.4 billion for the nine-month period, which was up 5.7 per cent on the same period last year.

Income tax, the Government’s main tax head, was €114 million or 0.9 per cent below target at €12.95 billion.

Target

On a monthly basis, it undershot the departmental target by €14 million or 1.1 per cent, coming in at €1.25 billion.

The weaker trend in income tax, which runs counter to the acceleration in employment growth, is a worry for the Government ahead of the budget.

Department of Finance principal officer John Palmer suggested the anomaly may reflect the sluggish level of wage inflation, which traditionally generates more tax revenue than the creation of new jobs.

VAT, the other main indicator of economic activity on the ground, also continues to underperform. The sales tax generated €10.19 billion, which was €278 million or 2.7 per cent below target.

Mr Palmer said while retail sales have increased in volume terms, price discounting may explain the weaker-than-expected out-turn in VAT.

Excise duty generated nearly €4.4 billion, which was €211 million or 5.1 per cent above profile.

The monthly receipts from excise duty were, however, €344 million, which was 16 per cent below target, reflecting the new pattern of car sales.

Receipts

The department also noted the front-loading of excise receipts on tobacco products was expected to continue to unwind during the second half of the year.

The strongest performing tax head continues to be corporation tax, which took in €4.16 billion, some €644 million or 18.3 per cent ahead of projections.

The over-performance of coporation tax has offset weaker-than-expected income and VAT receipts for several months.

The latest exchequer numbers do not impact the €1 billion in fiscal space earmarked for next Tuesday’s Budget, which will split two-to-one in favour of spending over tax cuts.

On the spending side, the figures showed total gross voted expenditure to the end of September was nearly €40 billion, which was €439 million or 1.1 per cent below profile but €731 million (1.8 per cent) higher in year-on-year terms.

Health spending was €10.5 billion, some €561 million or 5.7 per cent up on the same period last year.

The latest returns resulted in an exchequer deficit for the period of €25 million compared with a deficit of €104 million for the same period last year.

The department said the €79 million improvement was primarily down to an improved tax take. The figures suggest the Government will comfortably hit its 0.9 per cent budget deficit target for 2016.

Separate figures from the Central Statistics Office (CSO) show unemployment fell to a new post-crash low of 7.9 per cent in September, down from the revised 8.2 per cent recorded in August.

The CSO data show the number of workers classified as unemployed last month was 172,900, which equated to an annual decrease of 24,000 or 1.2 per cent.

The State’s youth unemployment rate was 15.9 per cent in September, a decrease from 17 per cent recorded the previous month.