Government’s tax revenue still off target but shortfall narrows

Half-year exchequer returns show the Government’s tax revenue is still running behind target.

However, the shortfall has narrowed significantly on the back of a pick-up in VAT receipts and corporation tax, suggesting the Government is now well placed to hit its tax targets for the year.

The latest returns show the Government’s tax take for the six months to June was €23.4 billion, which was 0.5 per cent or €110 million below the department’s target for the period.

Income tax, the State’s largest tax stream, was again below profile at €9.3 billion, which was 2.3 per cent or €214 million less than expected.

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The department now blames the apparent under-performance on its own tax forecasting model for the universal social charge (USC), which over estimated the impact of wage growth on the tax.

Principal officer John Palmer said the USC was still a relatively new tax, making it difficult to predict, and would probably come in around €80 million behind target for the year.

The department will, however, be encouraged by the performance of corporation tax, which was ahead of target for the first time this year, coming in €20 million above profile at €3.5 billion.

VAT receipts, which reflect consumer spending, generated €6.7 billion for the half-year period, which was 3 per cent or €202 million above target. Monthly VAT receipts in June, however, were nearly 40 per cent down, which the department blamed on higher-than-expected repayments.

Excise duty performed better than in previous months but still came in 2.9 per cent below target at €2.86 billion, which was again linked to the front-loading of receipts on tobacco products and poor car sales.

The latest figures resulted in an exchequer surplus of €2.5 billion compared with a deficit of €1.1 billion for the same period last year, with the improvement attributed to the recent AIB share sale.

On the expenditure side, the figures show spending on health and social protection were €7 billion and €5.4 billion respectively, but both were inside the Government’s target for the year.

The only department to breach its expenditure ceiling was justice, which came in at €1.09 billion with the excess linked to garda overtime.

“At the mid-point of the year the healthy tax performance is now largely on target, while expenditure remains within expectations,” Minister for Finance Paschal Donohoe said.

“This means that we are currently on track to meet our fiscal targets for 2017 while also balancing the need to invest in capital projects and public services,” he said.