Fluid doesn’t quite describe it. The public-health situation, from which everything else seems to flow, is changing so rapidly from week to week that no one can say for certain where we’ll be in six weeks, let alone six months.
The Department of Finance yesterday jettisoned its tax forecasts for the year, saying they were no longer valid. It produced them in October – for the budget – but on an entirely different set of assumptions, some better, some far worse.
Back then we were facing into a second wave of the virus, one we thought we could snap in time for Christmas with a brief period of Level 5 restrictions. We didn’t bank on starting the new year with the biggest surge in cases since the pandemic began and in another hard lockdown. We didn’t think we’d be rolling out a vaccine this early either.
We also, rightly or wrongly, worked on the cautious basis that the UK would crash out of the European Union without a trade deal.
Hence the department’s forecast for a €60 billion tax haul this year has been shelved, as have the monthly profiles which flow from it. Normally we benchmark the monthly exchequer numbers against these profiles to gauge the health of the public finances and the health of the economy in general.
“The speed at which the public health situation – and both the economic and fiscal fallout of same – is evolving, prevents such an exercise in the very short term,” the department said in a note attached to its January exchequer returns. It has promised to come up with a fresh set of forecasts but not until April when it updates its economic forecasts.
VAT
The most worrying aspect of the last exchequer numbers is VAT. January is the biggest month of the year for the sales tax as it incorporates the traditionally busy festive shopping period and post-Christmas sales. At €2.35 billion, VAT receipts were nearly 13 per cent below January 2020. These are difficult times for retail and hospitality, make no mistake.
With the current enhanced Level 5 restrictions, there will be concern that VAT receipts will fall further. However, Peter Vale, tax partner with Grant Thornton, sounds a note of optimism, suggesting that as consumers adjust to the new environment the fall might not be as pronounced as the 50 per cent drop in VAT receipts witnessed at the start of the first lockdown.
