Public finances in good shape despite softer income tax receipts
Latest exchequer returns indicate Government collected €9.2bn in tax so far this year
The State’s finances remain in good shape, with tax revenues higher and spending lower than forecast.
The latest exchequer returns, which cover the first two months of the year, indicate, however, that income tax receipts were 3.3 per cent lower than expected at €3.97 billion.
The Department of Finance said the weaker trend was “due to the timing of payments by large employers” and was unlikely to play out over the year.
It also noted that income tax was up over 14 per cent in year-on-year terms, reflecting the current strength of the labour market.
VAT generated just over €3 billion, which was 4 per cent more than expected. The sales tax benefited from a reasonably strong November-December shopping period.
Corporation tax, which hit a record €10.9 billion last year, came in at €583 million for the first two months of the year, which was 117 per cent or €314 million above profile.
However, the department cautioned that January and February were relatively small collection months for the business tax, acccounting for less than 2 per cent of overall receipts last year.
Overall the Government collected €9.2 billion in tax, which was €285 million or 3.2 per cent ahead of expectations, and nearly 14 per cent up on last year.
While monthly tax returns fluctuate, the latest figures left the exchequer with a surplus of €1 billion compared to a surplus of €139 million this time last year.
The €863 million year-on-year improvement was driven by an increase in tax revenues, and somewhat offset by increases in current and capital voted expenditure, the department said.
Total Government spending for the two months was €10.2 billion, which was €251 million or 2.4 per cent below profile but €480 million ahead of 2019.
“A big concern will be the impact of the coronavirus on the 2020 results of many companies,” said Peter Vale, tax partner at Grant Thornton Ireland.
“ Given the scale of the outbreak, it is possible that there will be a significant dip in companies’ profits, leading to a drop in corporate tax revenues in the coming months,” he said.
“ We may see the first indications of this next month but it will be May before the impact will really be seen in the tax figures,” he said.
Mr Vale said a dip in corporate tax receipts as a result of depressed economic activity could coincide with a dip in income tax receipts if employment levels fall.
“This would likely have a knock on impact on spending and VAT receipts. Hence the state of the public finances in the coming months could be heavily influenced by the success or otherwise of efforts to contain the spread of the coronavirus,” he added.
The department indicated it was closely monitoring incoming data in relation to the virus outbreak and would present an assessment of the economic and budgetary implications in next month’s Stability Programme Update (SPU).