1Tax revenue in August was more than 7 per cent below target, with income tax receipts coming below expectations after months of outperformance.
While tax revenues were ahead of target for the first eight months of the year, this was the second month in a row when they came in behind target, raising some concerns about the trends heading towards the budget.
Stockbroker economists believe that the Government remains on target to comfortably undershoot its borrowing target for the year, and will have the expected €1 billion for tax cuts and spending increases in the October budget.
Income tax receipts in August of €1.408 billion were 3.4 per cent below the same month last year, according to the latest returns, and were €98 million, or 6.5 per cent, below the monthly target. Income tax is now running slightly below target in the first eight months of the year, appearing to run contrary to other data showing an increase in employment.
The other main weakness in August was in excise duties, which finished the month €98 million, or 19.6 per cent, below target, mainly due to weak tobacco receipts. This was largely seen as a timing issue as excise duties have been front-loaded and remain well ahead of target for the year.
Overall, the exchequer recorded a deficit of €329 million in the first eight months of the year compared to a deficit of €1.291 billion in the same period last year. The year-on-year improvement is driven by an increase in tax revenue, which is running 6.2 per cent, or €1.702 billion, ahead of the January-August period last year.
Trends
Taxes also came in below target in July, when there was a €98 million shortfall, largely due to lower-than-expected VAT receipts. As August was not a month when VAT is normally paid, the next key marker for VAT trends will be the September returns, which will come a few weeks before the budget.
The Department of Finance will also be monitoring the income-tax trends closely to see whether the shortfall in August was a once-off. The Department of Finance will base its 2017 tax figures largely on trends this year and this will be a vital input into the budget arithmetic.
Spending remains broadly on target, with total net spending of €27.713 billion some 1.3 per cent below expectations. Health spending is running 6.5 per cent ahead of last year, in line with revised estimates made in July, when additional funds were allocated to the health service.
In an analysis of the figures, Davy Stockbrokers pointed out that total tax revenue are now €449 million ahead of target, though they had been as much as €742 million ahead of target in June. Davy expects that the borrowing target of 1.1 per cent of GDP will still be comfortably undershot.
Merrion Stockbrokers said that with the Irish economy set to grow strongly again in 2016, the underlying deficit is “likely to come in at less than 1.0 per cent even allowing for some potential expenditure over-runs, particularly on the health vote.”
There had been some fears of Irish economic growth being hit after the Brexit vote, but most analysts do not expect this to show up in the figures until next year. However key income tax, VAT and corporation tax trends will not be closely monitored in the run up to the budget.
