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Exchequer returns November 2016 - Peter Vale commentary

Peter Vale Peter Vale

Today’s exchequer figures are a bit of a mixed bag, with strong income and corporation tax figures countering weaker than expected VAT receipts.

While VAT receipts remain ahead of last year, they continue to lag behind forecasts, perhaps reflecting an element of nervousness amongst consumers. The next couple of months are clearly critical for retailers and for the contribution of VAT to the Exchequer.

On the positive side, November saw a robust set of figures on the income tax side.  Corporation tax also continued its strong run, with receipts now 11% ahead of last year. While there is little detail behind the numbers, it is quite possibly driven by large multinational groups with a  substantial presence in Ireland. 

Taxable profits are increasingly becoming aligned with real substance so that as large MNCs add more employees in Ireland, we see a resultant increase in taxable profits at the corporate level. Added to that is a global trend of valuable intellectual property moving away from traditional tax havens to onshore locations such as Ireland.

Looking ahead, average VAT figures remain a slight concern, particularly in light of Brexit uncertainty. However it appears that corporation tax receipts will continue to provide a buffer against shortfalls elsewhere, with the 2016 increase in corporation tax receipts likely to be sustained into next year. One risk to the corporate tax numbers is any impact of US corporate tax reform on investment into Ireland, but at this stage any major change in investment strategy appears low risk.