Exchequer Figures

Exchequer returns August 2020 – Peter Vale commentary

Peter Vale Peter Vale

Overall, eight months into the year, tax receipts are only 2.3% behind the same period in 2019.   Given that some of this deficit is a timing issue and will be recovered in 2021, this is a remarkable outturn given the COVID19 backdrop, largely driven by large corporation tax surpluses, a strong start to the year across all taxes (pre COVID) and more resilient than expected income tax receipts during COVID. 

While August is one of the quieter months on the tax receipts front, there was a keen focus today on the income tax figure.

In recent months we have seen a positive bounce in income tax receipts.  This continued in August, with receipts only marginally behind the August 2019 comparable.  Year to date, overall income tax receipts are only 1.4% behind the equivalent 2019 figure, which again is a remarkable achievement, in particular given that many businesses will have opted to defer payment of income tax liabilities to Revenue.

The income tax figures, combined with ongoing government supports such as wage subsidies, would suggest that disposable income levels have not changed significantly. 

There is also some evidence that consumer spending is starting to return to some level of normality.  The rate of decrease in VAT receipts has slowed considerably since the outset of the pandemic, from a 50% drop in March to 30% in July.  While a 30% drop is significant, it has to be remembered that many businesses have opted to defer payment of the VAT to Revenue, so the figures should reflect a smaller drop in actual spending.  It is also noteworthy that Excise receipts in August were ahead of August 2019, explained by the Department as potentially due to increased spending on tobacco as cross border shopping fell.

Clearly however, any reduction in government supports over the coming months will impact on disposable incomes and have a resultant negative impact on spending and VAT receipts, unless there is a quicker than expected return to pre COVID employment levels. 

Overall, the combined figure for income tax and VAT for the full year is expected to be well behind 2019 but ahead of the Department’s revised COVID forecasts. Some of the 2020 deficit should be received in 2021 when amounts deferred become due.

The July stimulus package provided for a reduced interest rate (3%) on outstanding corporation tax liabilities.  This will result in some businesses deferring payments that would otherwise fall due in the latter months of the year.  While this would impact on the full year 2020 corporation tax receipts, again it should represent a timing issue only with the payments being received by the Exchequer in 2021 or subsequent years.

The July package also allowed companies early access to COVID related tax losses.  Tax losses will impact on corporation tax receipts this year and next year, and possibly further into the future.  While payments in the year to date suggest that the level of losses may not be as great as expected, it is very difficult to gauge this impact.  While November will provide for a better read, it will be next year before the impact of tax losses on corporation tax receipts is known.

August itself is a quiet month for corporation tax receipts.  The year to date figures are encouraging, over €1.4bn ahead of 2019 despite a minor slump in July, with November the key month in determining how the year overall will look.