Indicators paint a surprisingly healthy picture of real economy


ANALYSIS:Tax, job and factory data show activity away from fiscal mire, writes DAN O'BRIEN

DESPITE THE massive uncertainty in recent weeks, all three of the most up-to-date indicators on the health of the economy show positive trends in November.

Yesterday’s tax revenues, combined with figures on the jobless claimant count and a survey of manufacturing managers released earlier in the week, appear to show economic activity may have been less affected by the bailout and bank fears than might have been expected.

Tax revenues are usually a very good barometer of what’s going on in an economy. It is encouraging the year-on-year tax take in November actually rose, if only by a modest 2.7 per cent. More encouraging still, it was the third straight month in which a year-on-year rise was registered. It has been a long time since such sustained increases in receipts were recorded.

In November, corporation tax receipts were up by more than 13 per cent on the same month in 2009. Given the oft-talked about successes of the big export sector, the strong rebound in profits surprised only by its magnitude.

In November alone, companies paid more than €1 billion in taxes on the profits they booked in that month. That amounted to more than one-fifth of the total tax take.

It now looks as if corporation tax revenues for 2010 will be almost identical to 2009 – an outturn not even the Department of Finance expected this time last year.

That there was any year-on-year growth in VAT receipts was a real eyebrow-raiser. One might have expected consumers to have been hoarding their cash last month given concerns about the banks and uncertainty about the unprecedented foreign rescue of the State.

Instead, VAT receipts were up just over 1 per cent year-on-year in November. Perhaps the influx of foreign journalists covering the sorry bailout saga boosted consumer spending, and hence VAT returns.

Despite continued signs of stabilisation in VAT receipts in the second half of the year, this will not be enough to offset the very weak returns in the early months of 2010. The outcome over the full 12 months looks set – yet again – to be down year on year, even if the decline will be in low single figures.

Excise receipts, the fourth-largest source of tax revenue, surged by 10 per cent in November compared with the same month a year earlier. That figure flatters, but here, too, excise receipts for the full year look set to be very similar to 2009.

Income taxes remain the weakest point, but – remarkably – talk of stabilisation appears justified. The year-on-year decline in November, of 3.6 per cent, was the smallest recorded in 2010.

This result gives cause to believe that the decline in the numbers on the dole in November was not all the result of people checking out of the country in search of opportunities abroad.

With spending targets being met, these aggregate revenue figures give some hope – however small – that the economy can pull itself free from the boulder of debt under which it has been pinned for so long.

Sometimes crises in financial systems can have surprisingly little impact on activity in the real economy. Given the magnitude of the events of the past month, one would not have thought the current crisis could possibly have been shrugged off by consumers and business. But perhaps the world has truly been turned on its head and everything we know about it is wrong.