SEPA switch-over still hampering exchequer returns

The delayed introduction of a new European-wide money transfer system at the start of the year continued to impact on the country’s finances last month, according to the latest set of exchequer returns.

An exchequer deficit of €1.7 billion was recorded for February, compared with a deficit of €0.9 billion for the same month a year earlier.

The Department of Finance said the main drivers behind the year-on-year increase in the deficit were the sale of the Bank of Ireland Contingent Convertible Capital notes in January and a €300 million loan to the Social Insurance Fund last month.

Tax revenues in the first two months of the year totalled €5.82 billion, virtually unchanged on the same period a year earlier.

Tax receipts in February were up €64 million compared to the same month a year ago. However, the department attributed this to delayed receipts from January arising from the introduction of the Single Euro Payment Area (SEPA). Cumulative figures to the end of February, which provide a more meaningful comparison, show tax revenues were broadly flat, down €4 million.

The SEPA payment system, which applies to the EU and five other countries in the European Free Trade Association – Norway, Liechtenstein, Iceland, Switzerland and Monaco – is aimed at speeding up cross-border credit transfers and debit payments.

VAT receipts totalled €2.1 billion, up 7 per cent or €141 million.

Income tax totalled €2.6billion to end February, an increase of €5 million year-on-year.

Corporation tax receipts declined 42.3 per cent year-on-year to €91 million. A large portion of this cumulative shortfall (€45m) was received into the Exchequer on the first working day of March, the Department said.

Excise duties were down €1 million for the first two months of the year to €649 million.

Stamp duties declined 60.9 per cent year-on-year to €107 million, while capital gains tax was up €24 million, or 37.3 per cent, to €88 million.

Local Property Tax receipts of €57 million had been collected by the end of last month, the department said.

Non-tax revenues were down €48 million over the year. This was largely due to the lower fees from the bank guarantee scheme which declined from €210 million to €56 million.

Capital receipts rose €215 million year-on-year, mainly on the back of the repayment of loans from the Social Insurance Fund and the recoupment of Exchequer advances to the supply account.

Peter Vale, a tax partner at Grant Thornton, said that the SEPA-related time delays make it difficult to read the latest Exchequer figures.

“On the positive side, VAT receipts appear strong. The key driver of this is increased consumer confidence, which allied with the increased number of people in jobs, is trumping the pain of higher taxes,” he said.

“The key question is whether the Minister will be in a position to cut taxes later this year. If the VAT figures remain strong and other tax heads hit forecasts, then I think it raises the real possibility of tax cuts later this year, providing further stimulus to the domestic economy,” he added.

While noting that it is still very early in the year to be drawing any firm conclusions on the outlook for the public finances, Investec Ireland said the latest figures point to continued spending discipline.

“Stable tax revenues compared to year-earlier levels, notwithstanding the SEPA issue which is likely to have delayed the receipt of some receipts into March, and continued cost control, are reassuring,” said Philip O’Sullivan, chief economist with Investec.