The latest Exchequer figures, while still a mixed bag, represent an improvement on recent periods after consecutive months of disappointing figures.
On the positive side, VAT receipts have remained strong. VAT is now the only key tax that is ahead of target, with figures for the year to date 3.9% ahead of forecast and 13.3% ahead of the comparable period in 2017. Strong VAT receipts indicate more disposable income in the economy, which typically translates into higher income tax receipts. Interestingly, income tax figures, while ahead of last year, continue to lag behind target, despite the very robust employment data.
It is difficult to reconcile the figures, with a possible explanation being more part time roles with lower pay, resulting in more people in work but less net disposable income. However there simply isn’t enough data in the figures released today to draw any firm conclusions on what is underpinning the figures.
May is a relatively significant month for corporation tax and the figures for the month show a welcome improvement. The 2017 returns are now back in line with the 2016 comparables, although still lagging well behind forecast.
It had been difficult to reconcile the recent weaker corporation tax numbers with the very robust corporation tax figures for 2015 and 2016. The view then was that higher corporation tax figures would be sustainable as large groups moved their valuable intellectual property away from traditional tax havens to “onshore” locations such as Ireland. While that view should still hold, it wasn’t translating into higher corporation tax receipts, thus the May figures represent a welcome return to form.
It is worth noting that on Wednesday next week (June 7), Ireland will be one of a large number of countries signing up to a new Multilateral Instrument (MLI). Broadly, the MLI will change the nature of existing double tax treaties and include new provisions which, amongst other things, will make it easier for an Irish company to have a taxable presence in another country. This has the potential to suck a portion of corporate profits out of Ireland’s grasp and into another jurisdiction, thereby putting pressure on future corporation tax receipts here.
In summary, there’s plenty of food for thought in the latest Exchequer figures, with a picture starting to emerge of what level of largesse or otherwise the new Minister of Finance will have come October’s budget.