The exchequer figures for April continue the recent trend of slightly disappointing numbers.
Income tax receipts continue to remain relatively flat compared with the prior year, despite strong economic growth and robust employment figures. It’s difficult to rationalise why income tax receipts aren’t stronger, with modest tax cuts in 2017 unlikely to explain the difference.
In contrast with the stagnant income tax numbers, VAT receipts for the year to date are strong, up 14.5% compared with 2016. For a long time, the increase in VAT receipts lagged behind increases in other tax heads, with favourable economic conditions not translating into greater consumer spending. The stronger VAT figures in 2017 would suggest a trend of increased spending, notwithstanding a sluggishness in certain sectors, such as new car sales.
Corporation tax receipts continue to be a cause of some concern, with the figures significantly behind both forecast figures and the 2016 equivalent, with no obvious explanation for the shortfall. So while the key months for corporation tax receipts are later in the year, the early returns remain a cause for concern.
To conclude on a positive note, the risk of fundamental tax reform in the US continues to recede. This is positive for Ireland and should help with the sustainability of future corporation tax receipts. While we believe that US tax reform of some sort is still likely, the aspects of the original proposals that had most potential to damage Ireland now look much less likely to form part of the final package.