Exchequer records another shortfall in tax revenues

More "puzzling" figures for the Department of Finance...

Exchequer records another shortfall in tax revenues

A payslip displaying tax deductions alongside 50 euro notes | Image: Brian Lawless / PA Archive/Press Association Images

The trend of Exchequer returns falling short of expectations is continuing, according to data published on Wednesday evening.

It confirmed a continuation of the underperformance in expected tax revenues seen earlier in the year which could threaten public spending if it is not reversed.

The Department of Finance revealed total tax receipts for the four months to April were 2.4% lower than forecast – making for a €344 million deficit.

Total tax receipts on a cumulative basis increased by €68 million (or 0.5%) compared to the same period in 2016

Receipts from income tax, corporation tax and excise duties did not match expectations, with only VAT reaching projected levels. Indeed, VAT receipts were 6% ahead of expectations and performing considerably better than 2016.

The spokesman for the department has said that it is "not at the point where we are worried", believing that the trend will not continue and that its full-year targets can be achieved. They added, however, that it accepts that the trend will have implications for budgetary policy if it extends into the next month.

Business editor Vincent Wall told Newstalk Breakfast that the income tax dip was particularly surprising given strong ongoing employment growth but that the department says sluggish universal social charge (USC) receipts have picked up as the year progresses.

He said:

"Tax returns in total are not falling. That's the first thing to put in context.

"There is a puzzling drop in the universal social charge income. That should be fairly tied in with PAYE, which is actually staying up. And also it should be rising you would think, because employment levels are rising. And in fact we had the latest unemployment figures out yesterday, which showed that unemployment is down to an eight-year low of 6.2%."

The department is now engaging with the Revenue Commissioners to evaluate the issue. The discrepancy between the corporation tax take and earlier estimations is particularly striking.

Corporation tax receipts of €67m were reported, closing April at €47m below profile. For the four months, receipts were €223m below target, with takings down €172m year-on-year. 

However, the department has emphasised:

"It is important to point out that corporation tax receipts can be 'lumpy' and are highly concentrated around the key payments months of May, June and November, which account for over 60% of the total receipts."   

The department has to publish a so-called Stability Programme Update for the EU Commission – its forecast of key economic activity and the likely Exchequer outlook for the year – and, in doing so yesterday, has left its General Government deficit prediction at 0.4%.

Wall stated that, if the problem rumbles on beyond May and into June, "budgetary figures may have to be adjusted with an impact on public pay negotiations and other elements of planned government expenditure". The five-month update in early June will be "crucial", he added.