Exchequer Returns

Exchequer Returns December 2017 - Peter Vale commentary

Peter Vale Peter Vale

Overall, 2017 was a good year for tax receipts, with revenues coming in broadly on target and 6% ahead of 2016.

When you look into the figures more closely, it's a mix of the good and the more moderate.

On the positive side, corporation tax receipts continue to impress, coming in over 11% ahead of what was a strong 2016. Our view is that the corporation tax numbers are sustainable, notwithstanding the recent US tax reform package and the contribution made by large US multinationals to the corporate tax take.

In the absence of US tax reform, there was a general view that Ireland was well placed to benefit from recent changes in the global tax landscape. That would augur well for future corporate tax receipts. 

The US tax reform package, with its "carrot and stick" approach to luring jobs back to the US, creates some uncertainty for Ireland. While we believe that both countries can benefit from the changes, it will be some time before the full impact is known.

On the income tax front, while receipts are 4% ahead of last year, they continue to lag behind target despite an outperforming labour market. It's not clear why this is the case, with a suggestion that lower paid part time roles might explain the discrepancy.

VAT figures are well ahead of last year, reflecting increased domestic spending despite the attractiveness of a weak sterling and the increased spending power of the euro in the U.K. Lower income taxes in 2018 and positive consumer sentiment should help fuel additional spending and support further VAT growth.

There are no great surprises elsewhere, with the lower than expected excise duty and stamp duty receipts already well flagged. Of some note is the strong capital gains tax performance for the month of December, a reflection of both increased asset values and an increase in the volume of transactions, with investors keen to find a home for cash in an environment of low interest rates.

So overall a good set of numbers but an increasing reliance on corporation tax receipts to fuel the strong growth.