Government tax revenues €202m below target in April

Department of Finance expects shortfall to unwind before end of the year

Stamp duty came in below projections, raising questions about Minister for Finance  Paschal Donohoe’s expectations for the tax head. Photograph: Frank Miller

Stamp duty came in below projections, raising questions about Minister for Finance Paschal Donohoe’s expectations for the tax head. Photograph: Frank Miller

 

The Government collected €200 million less than expected in tax during the first four months of the year, the latest exchequer returns show.

However, the Department of Finance said it expects the shortfall to unwind before the end of the year, adding that the Government’s main tax heads are “performing strongly” on an annual basis.

The latest returns for April show the Government collected €14.7 billion in taxes during the first four months of 2018.

While this was 3.6 per cent, or €516 million, up on the same period last year, it was €202 million or 1.4 per cent below what the department had targeted.

The below-target performance arose from softer-than-expected returns across the Government’s four main tax revenue streams – income tax, VAT, corporation tax and excise duty.

However, the bulk of receipts from these taxes are not expected until later in the year.

Income tax came in €74 million behind target at €6.5 billion for the period. However, in annual terms it was nearly 6 per cent, or €356 million, up on the same period in 2017, reflecting the current the growth in employment.

VAT, which reflects conditions in the retail sector, came in marginally below profile at €4.8 billion,although April is a non-VAT month.

Corporation tax

Corporation tax, which has generated record returns for the Government in recent years, generated €618 million, which was 3.1 per cent below target,but the department said most of the annual total from the business tax would come later in the year.

The other main tax, excise duty, came in at €1.66 billion, which was €56 million or 3.2 per cent off target.

Stamp duty was nearly 10 per cent, or €44 million, weaker than expected, which raised concern about whether the higher 6 per cent rate of commercial stamp duty would yield the extra €375 million envisaged by Minister for Finance Paschal Donohoe in the last budget.

Overall, the figures pointed to an exchequer deficit of €3.4 billion for April, compared to a deficit of €2.5 billion at the same point last year.

The €893 million year-on-year increase was primarily due to higher expenditure, which was partially offset by increased tax revenue, the department said.

Current spending, meanwhile, amounted to just over €18 billion for the period, which was €192 million, or 1.1 per cent, ahead of profile and up by €1.1 billion (7 per cent ) in year-on-year terms.

Health spending came in at €5.09 billion, which was €70 million more than had been budgeted, while employment and social protection came in at €3.6 billion, €153 million ahead of target.

“Probably the figure most eagerly awaited in today’s exchequer figures was that for income tax,” said Peter Vale, tax partner with Grant Thornton. “We saw a surprising dip in income tax receipts in March, something that was hard to rationalise against the strong labour market, evidenced this week by the lowest unemployment figures since 2008,” he said.

“The Department of Finance previously blamed a dip in returns from the self-employed sector as the reason for the weaker than expected income tax figures,” he said. “The good news is that the April income tax receipts were healthier, with the monthly figure on target and ahead of April last year, although figures for the year to date still lag forecast by 1.1 per cent,” he said.

Fiscal stance

Separately NUI Galway economics professor Alan Ahearne, former adviser to the late minister for finance Brian Lenihan, said the Government needed to think long and hard about the fiscal stance it should adopt at the next budget.

“Should fiscal policy add extra fuel to the economy or should it take some out?”he asked at the annual Insurance Ireland lunch on Wednesday. “Given the economy is going so well, it probably should be taking some out. It certainly shouldn’t be adding extra fuel.”

Prof Ahearne also warned of possible risks to Ireland’s current growth cycle from Brexit and the rise of protectionism and trade wars internationally. He also noted that tax reforms in US and potentially in Europe could make Ireland less attractive.