The state collected slightly less tax than expected in the year to the end of July but it also spent less than planned and the government’s finances were boosted by the sale of a 28 per cent stake in AIB, exchequer figures released yesterday show.
Tax revenues for July closed the month just 2.6 per cent or €119 million below target. As a result, cumulative tax revenue is 0.8 per cent or €230 million below profile, which represents a year-on-year increase of 4.5 per cent or €1,201 million.
Peter Vale, a tax partner at Grant Thornton, said that exchequer figures were increasingly important in terms of what scope there would be in October’s budget for tax cuts and spending increases.
Ireland’s economy has been the top performer in the EU for the past three years, swelling the country’s tax take in the process. The finance ministry has forecast that tax revenues will grow by 5.2 per cent this year.
There is roughly €300 million to €400 million available to Paschal Donohoe, the finance minister, in the budget because of pre-commitments such as the agreed increase in public sector pay. Ireland aims to cut its deficit to 0.4 per cent of gross domestic product this year from 0.7 per cent last year as it moves towards its first balanced budget for a decade.
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The government’s surplus for the first seven months of the year swelled to €3.37 billion from €862 million at the same time last year, primarily due to the sale of 28 per cent of the state’s shareholding in AIB.
When the AIB share sale and other one-off transactions are excluded, the government surplus increased by €671 million from the same time last year due to increased tax revenues and reduced interest costs.
Overall, total net voted expenditure to the end of July, at €25,507 million, was 0.9 per cent or €244 million below target, but up 4.7 per cent or €1,138 million in year-on-year terms.
Tax receipts have been erratic this year, with many sub-categories undershooting expectations.
“On the corporate tax front, the recently published tax strategy papers note that claims for tax relief for intangible assets expenditure have increased from less than €3 billion in 2014 to almost €29 billion in 2015. This huge increase likely ties into the distorted GDP figures for last year, with massive inflows of intellectual property,” Mr Vale said.
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“Notwithstanding the additional tax allowances being claimed, corporate tax receipts have strengthened in recent months after a weak start to the year, with the figures broadly on target and well ahead of last year. In the longer term, the inflows of IP [intellectual property] should result in even stronger corporate tax receipts, once the tax allowances have been fully utilised.
“Ignoring stamp duty, capital tax receipts are slightly ahead of target for 2017, but it is striking how capital taxes have fallen as a percentage of the overall tax take since 2007, notwithstanding that the tax on capital increased from 20 per cent to 33 per cent in that period. Despite this, a reduction in the capital gains tax rate in October looks unlikely, although entrepreneurs may see some additional relief.”
Exchequer debt servicing costs to end-July were €3,820 million, a year-on-year decline of €516 million or 11.9 per cent, the Department of Finance said.
The department’s tax strategy group released its report for this year before the consultation period for the forthcoming budget.
It warned that there was limited room for welfare increases and that the government would have to look at other tax-raising measures if it wanted to cut the universal social charge.