May is a wicked month

An tSaoi04/06/2011

An Saoi: The tax figures were released with a range of different views expressed. Read Dan O'Brien as an example of the general tenor of comment.

Personally I was quite surprised about the overall weakness of the figures. The Corporation tax figures are very alarming. Net tax paid is just €310M against a profile figure of €450M. As I commented last month, four of the largest multi-nationals using Ireland, make payments this month and the profile figure struck me as very low. (I was expecting the Corp. Tax figure to come in at €600M.) Such a poor performance from these key companies must make reaching the annual target very difficult.
This of course shows how tax management works. It suggests that these companies have reduced their effective rates of tax down to just 2% or 3% by the use of licensing arrangements or the transfer of other costs into the Irish operation, which had not been there historically.
VAT has come in very close to target for the month. Car sales are up 12% to date as can be seen from these SIMI National Vehicle Statistics and the excellent weather during the two months surely gave the country a bit of a buzz. But to get things into perspective it is just €2,066M short of the same month in 2007.

Excise Duties are following the trend of VAT. Trade going North seems to have more or less ended as retailers have reduced margins enough to make it not worthwhile to make the journey in search of bargains. Excise duty will slip again once car sales come to a halt.

The smaller taxes CGT, CAT, Customs & Stamp Duty are all chugging along in the background. In the case of CAT & CGT we will have to wait until later in the year to see how they will fare out

This month I would like to look at Income Tax (incorporating the USC) in detail. Firstly let me thank Dr. Leo Varadkar for a Dáil question of his on the 12th October 2010 and to Michael Taft for pointing me in the direction of Dr. Leo’s good work.

€5,061M has been paid in Income Tax (incorporating the USC) in the first five months of 2011. This is made up of Income Tax paid on earnings in the months December 2010 to April 2011, Income Levy for December 2010 and the USC on the January to April 2011 earnings. At the end of May 2010, €4,220M had been paid in Income Tax and Income Levy. The USC also incorporates the Health Levy. Thanks to Dr. Leo’s question we know that approx. €2,431M was due by way of the Health levy in 2010. Approx. 37.4% of Income tax paid in 2010 was paid by the end of May 2010, but for the purposes of my calculation here I am going to assume that just 33% of the Health levy was paid by 31st May or approx. €800M.

The real comparison for the two years is,

2011: €5,061M (IT & USC)
2010: €5,020M (IT & Income Levy 4,220M plus Health Levy 800M)

The Budget introduced Income tax changes expected to yield approx. €950M for 2011 in additional Income tax or €395M in the first five months. We have collected about an additional €40M. Just like my daughter’s hamsters on their wheel, we are running at full pace, going no where and still in the cage.


Conclusion: The final outcome is dependent on some pick up in the economy for the rest of the year. This is particularly true of VAT where in recent years the majority of VAT was paid in the first five months of the year. With the end of the car scrappage scheme almost upon us, I assume that the final six months will be fairly barren in the motor trade. There is absolutely no sign of any pick up in Consumer spending, indeed the opposite is true. If the projections set out in the Oxford Economics/Ernst & Young Summer Forecast 2011 are correct the second half of the year will be extremely difficult. I have set out below their figures and those provided by the Dept. of Finance in their Monthly Economic Bulletin for June.

2011
Category
D. of Fin
E & Y/0xford
Difference
Personal Consumption
- 1.8%
- 4.1%
(2.3%)
Government Consumption
- 3.0%
- 3.8%
(0.8%)
Investment
-11.5%
-15.7%
(4.0%)
Exports
6.8%
5.2%
(1.6%)
Imports
4.7%
1.3%
(3.4%)
GDP
0.8%
- 2,3%
(3.1%)
GNP
0.3%
- 2.6%
(2.9%)

There is also substantial difference between the two forecasts for 2012

2012
Category
D. of Fin
E & Y/0xford
Difference
Personal Consumption
0.0%
- 3.3%
(3.3%)
Government Consumption
- 2.3%
- 2.6%
(0.3%)
Investment
1.0%
- 1.9%
(2.9%)
Exports
5.7%
5.1%
(0.6%)
Imports
4.1%
2.7%
(1.4%)
GDP
2.5%
1.1%
(1.4%)
GNP
2.0%
0.6%
(1.4%)

I will update my forecast for final tax profile over the next few days. However with all economic pointers going South, it doesn’t look good.

Posted in: Fiscal policy

Tagged with: exchequer returns


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