ANALYSIS:Beneath the positive veneer, the figures betray many one-off influences
AGAINST THE backdrop of a deepening sovereign debt crisis, the monthly exchequer returns appear trifling. Ireland’s fate now depends on events and decisions elsewhere. For a small open economy, this is always the case.
But that cannot be a reason to give up. The long, painful business of undoing the damage to the public finances must grind on. Yesterday’s exchequer figures for July show the Government is taking in more cash. But, worryingly, it is spending more.
Last month, taxpayers poured €3.345 billion into the State’s empty coffers. That was a 23 per cent increase on July last year, and the biggest such jump since the property frenzy. When added to the amounts collected in the January-June period, total tax revenues in the first seven months were up nearly 9 per cent on the same period in 2010.
The headline figures were also positive in that they were slightly higher than the Department of Finance’s forecasts. That means the 2011 targets set out in the EU-IMF bailout are even more likely to be met. This, in turn, keeps alive the barely-flickering hope that Ireland will be able to start standing on its own again as scheduled at the end of next year.
If yesterday’s tax figures kindle hopes of exiting the bailout, they give little reason to believe the economy is getting off its knees.
July’s revenue figures were bolstered by more companies settling their tax bills than usual in that month. But as there is neither rhyme nor reason to the timing of companies’ aggregate corporation tax payments, the news cannot be considered the start of a trend. Indeed, July’s big year-on-year increase in revenues had more to do with the unusually small amount companies paid in July last year.
The other big contributor to the bumper tax harvest last month was from income tax. It generated €1.24 billion in July, almost double the amount in the same month last year. Much of this is the result of an accounting change. The health levy, rolled into the universal social charge at the start of the year, used to go to the Department of Health. Now the Department of Finance gets it.
The other factor was the rate changes in the December budget. They have boosted revenue. The taxman is taking more of the income pie. There is no sign the pie is growing. Evidence comes from indirect taxes – trends in which are a good reflection of economic activity.
The most wide-ranging indicator (and second-largest source of revenue) is value added tax. Following a big year-on-year fall in June, a second consecutive decline was registered in July.
For the first seven months of the year, VAT was down on the same period in 2010 and below target – the only major tax source to lag expectations in the January-July period.
On the expenditure side, some of the smaller departments have made swingeing cuts. This, along with a continued large underspend on the capital side, has partially offset higher spending in the big budget departments – health, education and social protection.
Total departmental spending in January-July was actually higher, at €26.65 billion, than in the same period last year. Over the same timeframe between 2009 and 2010, it fell by 7 per cent. It is to be hoped this does not represent an easing of efforts to bring down spending now that higher taxes are generating more revenues.
