Weak VAT receipts push Government finances off target

Exchequer returns for February show Government collected €7.8 billion in tax

Minister for Finance Paschal Donohoe: The department dismissed suggestions the weakness in VAT was linked to a pick-up in cross-Border shopping, saying it arose because of bigger-than-expected monthly rebates. Photograph: Dara Mac Dónaill

Minister for Finance Paschal Donohoe: The department dismissed suggestions the weakness in VAT was linked to a pick-up in cross-Border shopping, saying it arose because of bigger-than-expected monthly rebates. Photograph: Dara Mac Dónaill

 

Government tax receipts were marginally below target in February on account of softer-than-expected VAT numbers, which the Department of Finance linked to monthly VAT rebates.

Exchequer returns for the first two months of the year show the Government collected €7.8 billion in tax, which was €228 million or 3 per cent up on the same period last year.

However, the total was €43 million below profile due to the weaker VAT number. The sales tax generated €2.76 billion, which was €78 million less than expected.

The department dismissed suggestions the weakness in VAT was linked to a pick-up in cross-Border shopping, saying it arose because of bigger-than-expected monthly rebates.

Income tax receipts, including the universal social charge, which reflect the ongoing growth in employment, came in at €3.3 billion, which was above profile and nearly 7 per cent up on the same period last year.

Corporation tax, which has generated record returns for the Government in recent years, came in at €213 million, 7.1 per cent below target, albeit most of the annual total from the business tax is not expected until later in the year.

The other main tax head, excise duty, came in at €857 million, which was €6 million above target and €46 million up in annual terms.

Surplus

Overall, there was an exchequer surplus of €217 million at the end of February. This compares to a surplus of €587 million in the same period last year.

The €370 million year-on-year reduction in the exchequer balance was primarily due to an increase in current expenditure, which was somewhat offset by increased tax revenue, the department said.

On the spending side, total voted expenditure in February amounted to just over €9 billion. This was €167 million (1.8 per cent) below profile, but up €396 million (4.6 per cent) on the same period in 2017.

Health recorded the biggest increase in spending, rising from €2.3 billion last year to €2.5 billion this year.

Peter Vale, tax partner in Grant Thornton, described the latest returns as a “mixed bag”.

“On the positive side, income tax receipts remained buoyant in February, following on from a strong January,” he said, while noting this was not unexpected given the positive labour market.

‘Lagging behind’

“While both VAT and corporation tax figures are now lagging behind last year, we wouldn’t read too much into these figures. The early months of the year are not major months for corporation tax receipts,” he said.

“As ever, there is a lot on the horizon that could impact on Ireland from a tax perspective, with US tax reform and EU digital tax proposals the most prominent,” Mr Vale said.

“Our view is that US tax reform will not have a major adverse impact on Ireland and can be good for both countries,” he said.

“The EU’s digital tax proposals have more potential to adversely impact small countries such as Ireland. However, it is worth noting that the proposals require unanimity in order to become law. Any country can exercise its veto,” he said.