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Exchequer Returns September 2017 - Peter Vale commentary

Peter Vale Peter Vale

This time last year, Minister Noonan had almost €500m more to play with in the Budget than forecast.  As it stands today, Minister Donohoe has over €200m less than planned to spend next week.

While the Minister normally manages to spring a rabbit out of the hat on Budget day, the above does not augur well in terms of any surprise tax cuts next Tuesday.  It looks more likely that very modest tax cuts will be the order of the day, with middle income earners the biggest beneficiaries if the mooted increase in the threshold for entering the higher income tax band is introduced.

The figures for September itself are reasonably encouraging, with corporation tax in particular continuing to recover from a slow start to the year.  Corporation tax receipts are now 12% ahead of the prior year. Corporation tax has been the stand out tax in terms of increased revenues in recent years, jumping 50% in 2015 alone. 

An increase in the transfer of valuable Intellectual Property (IP) to Ireland has been noted as one of the reasons for the upsurge in corporation tax receipts, with a suggestion that the rules around the tax deductibility of IP will be tweaked in the Budget next week, to allow for a smoothening of corporation tax receipts in future years.

September was a relatively strong month for income tax receipts, although we are still not seeing a bounce in tax receipts commensurate with the strong employment data.  However figures for the year are nonetheless 5% ahead of the same period last year.

Despite a weak September for VAT, overall VAT receipts remain broadly on target and are well ahead of last year.  While still unclear, it is looking less likely that there will be any movement in either the hospitality rate (upwards) or the VAT rate on construction services (downwards).   No reduction in the VAT rate for the construction sector would be disappointing in so far as it could help alleviate supply side shortages on the housing front.

Overall, it doesn’t look like the Minister has much room for manoeuvre next week, with less in the kitty than expected.