Exchequer figures for the year to date remain strong, tracking target and ahead of last year by 8.1%.
Probably the biggest surprise is that Brexit does not seem to be curtailing consumer spending, with VAT figures broadly tracking forecast and 5.5% ahead of last year.
However August is a quiet month for VAT receipts and it’s difficult to see the figures later in the year not being adversely impacted by Brexit. Any unexpected fall in VAT revenues will require a surplus elsewhere to plug the gap.
July income tax receipts were weak, blamed by the Department on a timing issue which was expected to reverse this month. The good news was that this reversal did take place in August, leaving the figures year to date 7.9% ahead of last year. However income tax figures remain slightly behind target, which continues to surprise given the buoyancy of the labour market.
Corporate tax receipts remain strong. While there is much talk about the impact of future changes on our corporate tax take, the figures for the year to date, in particular over the summer months, would indicate that there will be another corporate tax surplus at year end. However our open economy puts us at the mercy of external forces; a continuation of current volatile global trading conditions could jeopardise any corporate tax surplus and leave the Minister looking elsewhere for additional revenues.
Given the uncertainty over the year end fiscal position, significant tax cuts look most unlikely in next month’s Budget. More likely is modest tax cuts and a possible curtailment of reliefs for higher earners. There appears to be little political appetite for an increase in wealth based taxes, such as property taxes, although longer term we believe this will make up a larger portion of our tax take.
In summary, uncertainty remains over how the Exchequer balance will look at year end, meaning the scope for any significant tax cuts in October looks most unlikely.