Exchequer figures for July continued the trend seen in recent months, with strong VAT and income receipts the main highlights.
The VAT figures are quite startling, with spending now firmly ahead of pre COVID levels. It’s clear that the strong VAT figures earlier in the summer did not reflect a temporary post COVID spending splurge - based on the latest figures, consumers are continuing to spend.
The fact that many of us will holiday in Ireland this summer should see the strong spending figures sustained for the remainder of the summer.
The income tax position is similar. Income tax receipts for July 2021 are over 20% ahead of the equivalent month pre COVID (July 2019), which is a remarkable statistic.
It’s clear that certain key sectors weathered the COVID storm, with earnings for many at least as high as pre COVID and significantly higher in some cases. This has translated into higher disposable income, which initially went into savings but is now being spent.
With some businesses now starting to pay down previously deferred tax liabilities, it’s likely that there will a large surplus over forecast at year end for both income tax and VAT. When robust corporation tax receipts are added in, by year end the Exchequer could be looking at a surplus of €3bn over forecast.
Attention will shortly move to Budget 2022. Despite the larger than expected tax returns, reductions in key tax rates may prove politically too challenging.