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Exchequer returns February 2016 - Peter Vale commentary

Peter Vale Peter Vale

Today’s figures will give comfort to the next Minister of Finance that the State’s finances are in good shape. Of particular note for the first two months of the year is strong income tax receipts, reflecting the increase in numbers at work. Excise receipts are also strong, driven mainly by buoyant car sales.

It’s interesting to compare the position in 2016 with that in 2006. Of note is the heavy reliance in 2016 on income tax receipts as a percentage of the total tax take. With significantly higher personal tax rates in 2016 compared with 2006, a bigger chunk of disposable income is being taken out of people’s pockets today, with this additional tax burden depressing economic activity.

If the new government can find a way to reduce the income tax burden in an equitable manner over its term in office, this should help the economy continue to recover. Clearly as an open economy we remain very susceptible to external events but the current personal tax burden stands out in Europe. While politically sensitive, a rebalancing of the books in favour of non income based taxes, for example property taxes, should help drive growth.