The rapid deterioration in the Government’s finances as a result of the Covid-19 crisis has raised the prospect of tax-raising measures in the upcoming budget.
While Minister for Finance Paschal Donohoe has ruled out increases to income tax and other big tax categories, such as VAT, as they might scupper recovery, the likelihood that certain tax reliefs might be reduced or scrapped remains a possibility.
One area being mooted is gift or inheritance tax, which is paid by someone who inherits property or funds from a person who has died. The UK is considering a hike in inheritance tax as a way of paying part of the coronavirus bill.
The latest exchequer returns show the Government recorded a deficit of €7.5 million at the end of April, more than twice the level recorded last year.
Virus-containment measures are also expected to blow a €14 billion hole in the Government’s tax base, reducing it to €49 billion for 2020.
‘Stifle recovery’
"The Minister has indicated that tax rises are not anticipated in the next budget, as to raise taxes would stifle recovery," Peter Vale, tax partner at Grant Thornton Ireland, said.
“However it is possible that certain tax reliefs will be examined closely, although nothing has been announced in this respect. Longer term, subject to the nature of the recovery and the state of the public finances, tax raising measures are of course a possibility.
“A broadening of the tax base or increases in property tax have been suggested in the past, but both are likely to be politically challenging,” Mr Vale added.
When combined with a massive increase in spending on health and social welfare, the Government is forecasting a budget deficit of €23 billion for 2020, but this is expected to be revised downward.
Extended
This is because spending on the Government’s two pandemic assistance programmes is expected to increase. Both are to be extended past their June deadline, albeit with changes.
At the start of the year, the Government had been targeting a budget surplus of €2.2 billion but the onset of coronavirus has thrashed the Government’s original budgetary plans.
The latest exchequer returns showed tax receipts were about €15.4 billion at the end of April – down 0.6 per cent or €86 million annually, with the Department of Finance noting the strong returns in the first two months of the year compensated to some degree for the steep decline in receipts in March and April. Income tax and VAT were down heavily on a monthly basis.
Excise receipts
Meanwhile, excise receipts fell 50 per cent year-on-year, or nearly €300 million, reflecting reduced consumption and a fall in new car sales (VRT).
The one upbeat note was corporation tax, which continues to exceed expectations. The business tax generated more than €900 million during the period, 93 per cent up on last year, but most of the revenue from this tax head flows in later in the year.
