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Exchequer Returns January 2018 - Peter Vale commentary

Peter Vale Peter Vale

Overall, tax receipts in the month of January were 4.9% ahead of January 2017, with broadly all tax heads performing well. VAT and income tax receipts were probably the stand out performers.

Despite some concerns around Christmas spending, VAT receipts surged over the Christmas period, indicating strong consumer spending. Consumers appeared to set aside Brexit and other concerns, resulting in VAT receipts that were over 5.7% higher than what was a strong January 2017 performance.

It is particularly encouraging to see VAT get off to such a strong start, auguring well for the year ahead.

Income tax figures last year were a little bit disappointing given the strong labour market. The income tax figures for January will thus be particularly welcome as they show an increase of 6.6% over the same month last year. Finally we are seeing the strong employment data translate to buoyant income tax receipts.

The big question is the sustainability of our tax receipts, particularly the corporation tax numbers. Will the US tax reform package eat into our slice of foreign investment and resultant tax revenues? Our view continues to be that the strong corporation tax growth witnessed in recent years will hold up, despite changes in the US and elsewhere.

Strong corporation tax receipts can provide an important buffer against any dip in tax revenues elsewhere, perhaps due to increased Brexit related nervousness later in the year.

So overall a good start to the year and positive signs for the months ahead.