Exchequer Returns

Exchequer Returns November 2019 - Peter Vale commentary

Peter Vale Peter Vale

November is the most significant month for tax receipts so there was a big focus on today’s figures, particularly on corporate tax.

Corporation tax receipts have doubled over the last five years, with much discussion regarding the sustainability of these returns.  A relatively small number of large multinational companies make up a significant chunk of the corporate tax take, thus putting a focus on potential volatility.

The good news in the November figures is that corporate tax returns continue to impress, exceeding the monthly target by €748m, and up €562m against last year’s equivalent period.  At the start of the year the Minister had predicted that 2019 corporate tax receipts would not reach 2018 levels so this is a remarkable result

The November corporate tax receipts for the most part reflect companies’ results for 2019.  The high receipts are all the more remarkable in the context of ongoing global trade wars and economic uncertainty.  In this context, there should be optimism that 2020 corporate tax receipts will at least hit 2019 levels.

Beyond 2020, the position is less certain.  This was reiterated by the Minister in a speech earlier today.  To date, the global momentum has seen a greater alignment between taxable profits and real substance, which has benefitted Ireland.  Profits previously booked in tax havens have been on-shored to countries such as Ireland, with a resultant increase in taxes paid by many large groups. 

However there is a move to allocate a portion of a group’s profits to where customers reside, which would remove some profits currently subject to tax in Ireland.  There is a further move to impose a global minimum effective rate of tax, which could dilute the benefits of Ireland’s low corporate tax regime.

There is still considerable uncertainty as to how these proposed future global tax regime changes will play out and how they might impact Ireland’s corporate tax base.  The Minister has cautioned that post 2020, corporation tax figures may fall.  In our view, while in the medium term there may be a fall in corporate tax receipts, longer term there are other factors that should see further robust corporate tax receipts. 

However with politics driving much of the changes, it is very difficult to predict the nature of the future tax landscape.  Thus while, on balance, we believe that in the long term the current level of corporate tax receipts can be maintained, this comes with a heavy caveat. 

Clearly any future corporate tax receipts volatility will put pressure on other tax heads to balance the books.  With personal tax and VAT rates already high, there is no obvious candidate for future rate increases, other than perhaps property taxes.  However this is likely to be seen as politically unpalatable.

The other key figures in today’s tax numbers were VAT and income tax. 

VAT figures for the month were slightly disappointing, with monthly receipts 3% behind target and 1.1% behind target for the year to date.  However, year to date figures that are 5.4% ahead of last year represent a solid result in the context of Brexit and other factors.

Income tax figures for the month were strong, €150m ahead of target, while year to date income tax receipts are almost €1.7bn (8.6%) ahead of last year.

Overall, this was another good set of figures, with tax receipts for the full year now likely to be close to 7% ahead of 2018. Given the level of economic uncertainty at home and abroad, this is a positive performance.