Tax revenues lower than expected last month due to VAT shortfall

Tax revenues came in below target in July due to a shortfall in VAT receipts, while corporation taxes and excise duties also came in lower than expected. The figures indicate that consumer spending growth may have slowed in the run-up to the Brexit vote.

Tax revenues remain ahead of target for the first seven months as a whole, but analysts and government officials will now be closely monitoring the monthly figures to see if weaker trends persist in the run up to the Budget. Official forecasts for next year will be finalised in October and will determine whether, as expected, there will be €1 billion available for additional tax and spending measures on Budget day.

The latest exchequer returns show tax revenue of €26.6 billion was collected in the first seven months of the year, up €2 billion or 8.5 per cent versus the same period in 2015 and €644 million or 2.5 per cent ahead of target.

However, total tax revenue for the month of July were down €98 million or 2.3 per cent below expectations as VAT receipts came in €61 million or 3.3 per cent below the €1.83 billion target.

On a cumulative basis, Vat receipts are now down €292 million or 3.5 per cent below expectations. However they are still 4.2 per cent ahead in year-on-year terms for the first seven months. This suggests that consumer spending is running ahead of last year, but that the rate of growth may have slowed in recent months.

Income tax receipts of €1.5 billion were collected in the month of July, up €65 million or 4.5 per cent versus the same month a year earlier and on target. This reflects rising employment and some increase in wages.

Corporation tax receipts were 16.5 per cent or €23 million lower than forecast for the month. However, on a cumulative basis, corporation receipts are up €482 million or 17.2 per cent higher than expected at €3.3 billion. Corporation taxes have been very volatile, and some large one-off payments boosted figures in earlier months.

Also suggesting some weakness in spending, excise duties were €25 million or 5 per cent below target in July. Duties of €3.6 billion were recorded at the end of the month, this is €376 million or 11.5 per cent ahead of target and up €723 million or 24.7 per cent in year-on-year terms.

Stamp duties receipts were €3 million above expectations at €114 million. In cumulative terms, stamp duties of €581 million at the end of July were down €35 million or 5.7 per cent against target but up 11.8 per cent versus the same period a year ago.

The exchequer returns show €21 million was collected in local property tax receipts last month, bringing the total for the year to date to €315 million.

At the end of July, the exchequer recorded a surplus of €862 million versus a deficit of €648 million for the same period last year. The Department of Finance attributed the improvement to a year-on-year rise in tax revenue, which was partially offset by increased expenditure and reduced non-tax revenue.

The latest returns show non-tax revenue of €2.27 billion at the end of July, were down €224 million or 9.1 per cent versus last year. The decrease was largely due to a one-off dividend of €203 million received by the Exchequer from ESB early in 2015.

Mixed bag

Conall Mac Coille, chief economist at Davy described the latest returns as a “mixed bag.”

“On balance, the weakness in the month probably reflects volatility and the unwinding of some of the strength in corporation taxes earlier in the year,” he said.

Elsewhere, Peter Vale, tax partner at Gran Thornton said the exchequer figures would reassure the Government that there will be some fiscal space in October’s budget, notwithstanding the impact of Brexit.

“Slightly worryingly, the figures show VAT receipts continuing to lag behind target. If this trend accelerates post Brexit, we could see the VAT figures falling further behind at the end of September. A resultant drop in VAT receipts could impact on the scope for tax cuts or spending increases in the Budget,” said Mr Vale.

“On the positive side, income tax figures remain on track, reflecting the strong labour market. Again, it will likely be some time before we see the impact of Brexit flowing through to the tax numbers, he added.

Philip O’Sullivan, chief economist at Investec said he saw little reason to quibble with the Department of Finance’s cautious guidance of a full-year deficit of €2 billion versus a deficit of €1.5 billion for the first seven months of 2016. for the same period a year earlier, a € 3.1 billion deficit was recorded.