Exchequer returns point to limited Budget wriggle room
Latest numbers show Government’s tax take still trails projection by €209m
The latest figures show the Government collected just under €30.5 billion in taxes for the period, which was €209 million less than it expected at the start of the year. File photograph: Getty Images
Exchequer returns for the first eight months of the year suggest the scope for spending increases and tax cuts in October’s budget remains extremely limited.
The latest figures show the Government collected just under €30.5 billion in taxes for the period, which was €209 million less than it expected at the start of the year.
The below-par performance was again down to income tax, which came in below profile at €12.2 billion, which was 1.8 per cent or €221 million less than projected.
The Department of Finance blamed the apparent under-performance on its own tax-forecasting model for the universal social charge (USC), which overestimated the impact of wage growth on the tax.
On the upside, the figures showed VAT receipts, which reflect consumer spending, were ahead of target, generating just over €9 billion, which was 1.1 per cent, or €90 million, above expectations.
The numbers resulted in an exchequer surplus of €1.8 billion for the eight-month period compared with a deficit of €329 million for the same period last year.
The department said the year-on-year improvement of €2.1 billion was primarily down to the recent sale of more than 28 per cent of the State’s shareholding in AIB.
“The shortfall in tax receipts will limit the scope for significant giveaways in the forthcoming budget,” Merrion economist Alan McQuaid said.
The figures come amid a warning from the UK’s Institute for Fiscal Studies that an Irish Government plan to remove the PAYE and earned income tax credits on higher levels of income would create an effective marginal tax rate of 64.1 per cent on income between €100,000 and €120,000, far in excess of the current top rate of 52 per cent.
The institute was responding to the recent publication of the department’s Tax Strategy Group papers, which included details of a plan to taper the PAYE credit allowance.
“Higher marginal rates reduce economic efficiency by weakening the incentive for individuals to increase their earnings,” the institute warned.