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Press release

Exchequer returns September 2015 – Peter Vale commentary

Peter Vale Peter Vale

The last set of Exchequer figures prior to Budget 2016 will further increase the pressure on the Minister from those advocating substantial tax cuts. The figures show buoyant tax receipts, underpinned by robust employment numbers, strong consumer spending and impressive trading performance by companies.

It’s likely that the healthy Exchequer position will lead to greater than expected tax cuts, with the lower/middle income bracket likely to benefit most. As these cuts will provide a greater incentive to work, it’s also likely that cuts in income tax rates will not translate into lower income tax receipts next year. Longer term however, we are likely to see a rebalancing of tax revenues, with a reduction in the income tax percentage and a greater percentage of tax revenues coming from wealth based taxes.

Higher earners

It seems likely that higher earners will not see a reduction in the top marginal rate, which is disappointing in the context of attracting senior people to Ireland and incentivising others to stay. Many of those on higher incomes are responsible for the creation of significant employment.

On the positive side, the Minister may feel the time is right to provide tax relief to entrepreneurs and small businesses. Ireland lags well behind the UK in this regard. Targeted tax reliefs can increase employment and productivity, ultimately costing little or nothing to the Exchequer.

Next week will see significant activity on the international tax stage, with the publication of the OECD’s BEPS report and EU sign-off on the exchange of tax rulings between member states. None of these developments should impact on the strong corporate tax figures published today. On the contrary, there are good grounds to believe that Ireland can gain from the changing global tax landscape, with taxable profits more closely aligned to substance.

In such an environment companies will look for a country with a low headline tax rate and a plentiful supply of labour, with Ireland providing a compelling case. This should lead to ongoing robust corporate tax receipts.