Lies, damned lies and the Dept. of Finance's statistics

An tSaoi06/03/2012

An Saoi: The Department of Finance has issued the February 2012 tax figures, which can be viewed here. The figures are so confusing a detailed explanatory note has been issued to explain the discrepancies.

Let us start with the headline figure. It is 12.53% over profile. However we now have three different explanations as to why the figures are so far over target.

a) Corporation Tax which came in too late for inclusion in 2011. See here for an explanation – discrepancy €261M
b) Corporation Tax refunds not processed - discrepancy €50m?
c) 2011 Income Tax, wrongly accounted for as Social Insurance – discrepancy €350M estimated (see below for explanation)

This gives a total discrepancy of around €661M and reduces the total from €5,891M to €5,230M or close to the expected target €5,237M.

Firstly in looking at the Income Tax figures, let us start with the Social Insurance Fund. The estimated yield for the SIF in 2011 was €7,148M while the outcome was €7,543M, a discrepancy of €395M. Income Tax for 2011 was €327M below target. Income tax began falling behind profile in the latter half of the year and it completely beggars belief that the Collector General and his staff were not aware of the movement in the two, Social Insurance over target and Income Tax below target by a very similar amount. It is unbelievable that they had to wait until the filing of forms P35 to discover the discrepancy. Anyone who has any experience of Revenue computer systems and its Management Information Systems knows that this discrepancy would have been picked up. While as the Department correctly points out that it doesn’t change the overall position, it does improve the tax position for 2012 while weakening the Social Insurance Fund. Effectively a lump of 2011 Income Tax was hidden as Social Insurance in 2011 and that money is now being taken back in 2012.

By taking this action, the position of the Social Insurance Fund has been considerably weakened. The size of the deficit in the SIF will be far greater than originally expected. In a classic neo-liberal tactic, are we about to see the State's financial hole depicted as the fault of Welfare spending, allowing it to be targeted in to bear most of the cuts for 2013?

The complete opposition of Dept of Finance to the Insurance principle and the opposition of Fine Gael to the extension of Social Insurance to other sources of income further weakens the position of the Social Insurance Fund.

Many questions were raised about the Income Tax target at Budget time. We now of course know why the Minister for Finance was so sure that the figure would be reached. Apart from the pensioners, he had this €300M tucked away. He also has a once off bonus of several hundred million Euro coming his way later in the year. Facebook’s Irish staff will be receiving their Restricted Stock Units some six months after the Initial Public Offering and with nearly 10% of their worldwide staff here, there should be lots of additional tax due. The Financial Times recently estimated that the total value of these RSUs will be in the region of $23,000M, with the tax due on vesting.

There should also be a substantial yield from a further investigation relating to those receiving foreign pensions, as described by Niamh Connolly in the Sunday Business Post on 19th February last.

Income Tax looks likely to well exceed its annual target for 2012.

Moving on to Value Added Tax, the target for the month was €220M net. The State received €194M net or just 88.2% of its target, which is only four weeks old. March’s figures which will cover the Jan/Feb period will reflect the cold blast of the retail sales decline and is highly unlikely to get anywhere near target.

Excise figures were €14M off reflecting the problems in the motor trade. It is unclear whether this is a temporary blip or something more permanent. Finance for the purchase of new cars is readily available to the solvent customers, both from the specialist lenders owned by the motor groups and from Credit Unions.
The inability to process CT repayments in a timely manner reflects the loss of staff. Taxpayers are going to have to get used to this as it will become the norm.
The other tax heads show figures on or very close to target.

The real story however is the further evidence of the cynical manipulation of tax figures to ensure that the 2012 figures look good. First, the movement of corporation tax from December to January and now we hear about this problem with income tax. One wonders what else has fallen down behind the sofa cushions?

Posted in: Fiscal policy

Tagged with: exchequer returns



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