Analysis: income tax receipts blip could signal deeper issue
Fall in income tax receipts ‘impossible to diagnose’, says Department of Finance
Department of Finance principal officer John Palmer with assistant principal Brendan O’Leary, left, and Annette Connolly, principal officer at the Department of Public Expenditure and Reform, announcing the exchequer returns for the first quarter. Photograph: Cyril Byrne/The Irish Times
A new batch of tax returns presents a mixed picture. Collections overall are rising steadily yet there was a dip last month in income tax, a crucial revenue source. At issue now is whether this was a blip or something deeper.
Timing and other unexplained factors are in play, but there is nothing at present to suggest the Department of Finance will have to look again at key fiscal calculations.
Given the lack of progress in government formation talks since the February election, it is clear that any revision to the fiscal plan for 2016 could disrupt an already difficult process. This comes amid yet more indications of pressure on health expenditure, another perennial source of political tension.
Payments into the exchequer reached €11.14 billion in the first three months of the year, €119 million or 1.1 per cent more than foreseen at the start of the year. Still, Revenue received €108 million in tax payments on April 1st that had been “delayed” in March. This money meant the implied first- quarter tax haul was ahead of target by €227 million or 2.2 per cent, and €775 million greater than in 2015.
Some €25 million of the April 1st haul was attributable to PAYE delays. Thus the net income tax shortfall was more in the region of €140 million than the €165 million set out in data for March 31st. There were various sources, the most significant being lower-than-anticipated PAYE and universal social charge payments. Although that reflects conditions on the ground in the labour market, department principal officer John Palmer said pay-related social insurance payments in March were exactly on target.
Other income taxes were behind target, he added. These included professional services withholding tax, dividend withholding tax, life assurance exit tax, the relevant contacts tax and self-employed tax payments. Noting that February income tax returns were on target, Mr Palmer said it was “impossible to diagnose” whether there was anything more than a blip in payments last month.
The April 1st delayed payments also included €75 million in respect of VAT, which means the implied return in March was ahead of target. This reflects buoyancy in the retail trade and looks a good deal more positive than the March 31st return, which suggested VAT was 4 per cent down for the month.
Although VAT returns for the first quarter remain behind target, Mr Palmer attributed this to higher levels of reclaimed VAT in February. This is seen as a positive trend as it reflects moves by retailers to increase stock levels in anticipation of increased trade.
Two other aspects of the tax story merit attention. After a huge advance in corporate tax payments last year, the new figures suggest the surge is continuing. While payments were no less than €300 million ahead of target in March, Revenue has told the department this follows “once-off” payments by a number of large companies.
No further information was provided but it shows the corporate tax pipeline continues to flow. The 2016 budget premised that €300 million of the 2015 corporate tax haul would not be repeated this year. While corporate tax can be a very volatile revenue source, all recent surprises in this bracket have been on the upside.
Then there are excise duty returns, €114 million ahead of target in the first quarter, reflecting the jump in new car sales since January.