Exchequer Figures

Exchequer returns December 2020 – Peter Vale commentary

Peter Vale Peter Vale

Despite being €2.1bn behind 2019 receipts, tax revenues for 2020 came in today significantly ahead of the Department’s revised forecasts in spring at the onset of COVID-19. A case of what could have been a lot worse.

Income tax held up remarkably well, ending the year only 1% behind 2019.  As lower paid earners bore the brunt of COVID-19 in terms of lost employment, the impact on income tax revenues was nowhere near as severe as expected. This trend is likely to continue in the early months of 2021.

VAT receipts decreased significantly earlier in the year, falling as much as 50% year on year in the early months of COVID. However they recovered strongly and ended the year 18% behind 2019.

It is clear that government subsidies will continue to be required to help support consumer spending. While VAT returns over the Christmas period may hold up, the return of more severe restrictions could see a significant fall in VAT revenues towards the end of the first quarter of 2021, similar to that witnessed during the first lockdown.

It should be noted that both income tax and VAT receipts in particular have been impacted by taxpayers electing to defer tax payments. Thus there will be hope that some of the deficit in 2020 will turn out to be a timing issue only.

Corporation tax continues to outperform, despite a couple of wobbles during the year. Full year corporation tax revenues ended the year €945m ahead of 2019. This is a remarkable result, reflecting for the most part the strong performance of key multinationals in the pharma, ICT and financial services sectors.

Looking further ahead, global tax developments continue to present a threat to our corporation tax regime, and tax receipts.

There may be additional US tax reform, in particular if the Democrats end up in control of both Houses. Further US tax reform could target bringing valuable Intellectual Property back to the US, which would adversely impact on our corporation tax revenues. Ongoing OECD initiatives to divert corporate profits to market jurisdictions pose a further threat. 

While there are positive factors pulling in the other direction, uncertainty over future corporate tax revenues is the net result. 

In summary, tax revenues for 2020 have ended the year much stronger than expected, boosted by a strong start to the year pre COVID-19, very resilient income tax figures, VAT figures that improved as the year went on and further impressive corporation tax receipts.

The move to Level 5 restrictions will impact on tax figures for the early part of 2021. However 2021 will also see the Exchequer receive some tax payments that were deferred from 2020. Importantly, the spectre of large corporate losses impacting on 2021 corporation tax receipts appears to have diminished.