Income tax receipts prove remarkably resilient to coronavirus

Revenue from Government’s main tax head has held up better than expected

Minister for Finance Paschal Donohoe said the Government was on course to run a deficit of €23 to €30 billion this year. Photograph: Gareth Chaney/Collins

Minister for Finance Paschal Donohoe said the Government was on course to run a deficit of €23 to €30 billion this year. Photograph: Gareth Chaney/Collins

 

One of the most eye-catching elements of the Government’s half-year exchequer numbers was not the massive jump in spending, that had been well flagged, or the over-performance in corporation tax, which is now a perennial feature, but the relatively benign impact of coronavirus on income tax.

For the six-month period, income tax receipts totalled €10.5 billion, up marginally on the same period last year. In the context of a nationwide shutdown with consumer-facing sectors such as retail and hospitality effectively shut and an unemployment rate that spiked to 28 per cent in April, that’s some going.

The Department of Finance revised its tax targets after the virus hit and the actual out-turn for income tax is 10 per cent, or €941 million, up on the revised target, which tells you that even the department has been surprised by the resilience of income tax, even if the June figure was €368 million or 21 per cent down on last year.

Laid off

What does this tell us? Two things. First, the 410,000 workers on the Government’s Temporary Wage Subsidy Scheme are still paying tax, which effectively means the Government is supporting taxes via spending outlays. Second, and more significant, is the fact that the coronavirus hit has fallen disproportionately on low-paid workers in the retail, foodservice/accommodation and construction sectors, who pay less tax.

Some three-quarters of income tax is paid by about 20-25 per cent of workers, those on the highest incomes. These people have not (in general) been laid off and were working from home during the lockdown. Hence the hit to income tax has been more benign that it could have been. This will aid the Government in its long climb out of the deficit.

With consumer activity so heavily curtailed, the big hit to the Government’s tax base should come from VAT. Receipts from the sales tax for the six months showed “a steep deterioration”, the department said, down €1.5 billion or 20.5 per cent on last year. Next month’s numbers will give us a better picture of the fall-off in consumer spending as a result of the lockdown and the resulting slide in VAT receipts on the Government’s ledger.

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