May figures

An tSaoi04/06/2010

An Saoi: May’s Tax figures suggest little sign of a pick up, despite the Dept of Finance’s brave effort to suggest that all is still on target. If there was any real improvement happening, then the tax figures should be beginning to show it. They are not. We remain over 10% below last year’s levels. The drop is not uniform, with perhaps small signs that those who have kept their jobs are wandering back into town on paydays.

Income Tax figures are 8.9% behind last year, and a full €219M below their estimates made just four months ago. This is perhaps the most worrying of all the figures. The publication of the most recent unemployment figures on the same day emphasised the point made so many times here – Tax flows from economic activity, not from cutting the economy further.

The Corporation Tax figures continue to show our addict-like dependence on multi-nationals, in particular big pharma & US computer software companies. Most of this month’s money may have come from just a handful of companies. Because companies pay their preliminary tax on fixed dates based on their accounting year end, payers in May would have either a 30th June year end or 30th November. Next month will see the first payments from companies with a 31st December year end, which makes up the majority of Irish companies

Jack Fagan in Thursday’s Irish Times Property supplement suggested that Executor led sales had picked up, however the Stamp Duty figures suggest that there is no bottoming out at all yet. Payments are 17.3% below last year and more alarmingly 14.3% below expectations. Capital Acquisitions Tax is ahead of both last year and profile, which perhaps confirmation of Mr. Fagan’s comments.

Capital Gains Tax is also down 41.4% on 2009, but is up on profile, but is miniscule compared to previous years.

The VAT figures were reasonable, reflecting a slowing in the rate of decline in retail purchases. The Central Bank’s analysis of credit card spending confirms this trend. A drop in the number of people shopping in the North may also have assisted. The suicidal dependency of all of the Irish banks on interbank borrowing to fund their loan books will ensure that providing new loans to Irish business or public will remain a dream.

There is a massive latent VAT bonanza for the State if even a small number of the empty new builds are sold, as effectively one sixth of the price will go to the State in VAT. However, sales are very unlikely for many years.

The forthcoming funding crisis facing not just the Irish banks, but all those banks across Europe who became dependent on the crack cocaine of banking, inter bank loans, will adversely influence the rest of the year. Even the dealer of last resort, the ECB, will not be able to deal with the demand.

There is a major caveat on all these figures – The Revenue provides no summary of outstanding refunds. Corporation Tax & VAT refunds can be huge, particularly VAT refunds for service exporters and the overhang can be substantial and material to the overall totals. There has been constant innuendo that the Revenue have slowed up the issuance of refunds, which maybe partially caused by the lost of experienced staff.

Without a substantial pick up in the economy happening very quickly, I cannot see the Minister getting close to his projection and remain wedded to my previous estimates.

Posted in: Fiscal policy

Tagged with: exchequer returns



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