There was an element of disbelief at the weekend over the scale of the Governments' good fortune. The November data, released this evening, show us where the largess came from. The Government expected to collect 8.3 billion in Nov, instead, they got 10 billion, 1.7 billion more than expected. 10 billion is a lot of money. It equalled, for example, the total tax take in 1990 and was almost two-thirds of the 1996 figure. It was also much greater than anyone, myself included, expected. Last month, I forecast the total
2006 tax overshoot at 2.8 billion - the estimates in the White Paper on Receipts and Expenditure released last Friday put it at 3.8 billion, a cool
1 billion extra. November is always a big tax month - this year it produced 22% of the revised 45.5 billion now expected for the year.
The extra 1.7 billion came from four main heads. CGT made the largest contribution, 650 million (It was also the biggest contributor last year, bringing in an additional 394 million in Nov 2005). We have no detail to explain this other than the general buoyancy in the property market over the past year. It reflects tax on gains made in the period January to September
2006 given that the payment date has been brought forward in recent years.
In recent times there was occasional bunching as sellers closed deals early for fear that the CGT rate would be hiked in the Budget. This phenomenon seems to have subsided as the merits of a reasonable, 20%, rate become ever clearer. Charlie McCreevy halved CGT in his first Budget in 1998. Receipts from Capital Taxes (CGT and CAT) in the previous year were 285 million.
|Department of Finance, Merrion Street, Dublin, Ireland|
This year, they are estimated to be 2.3 billion, eight times higher.
Anyway, any pre-Budget closings would be reflected in January 2007 receipts as tax on disposals between 1 Oct and 31 Dec is not payable until then.
The second biggest contributor was Corporation Tax, which came in 456 million ahead of target in November. As most of the CT is paid by a small number of companies, Revenue is particularly cagey about revealing details.
This was unexpected as last November it had undershot and, indeed, had been weak recently, falling below target in three of the past four months. This year sees the end of the acceleration in payment dates which has made CT so difficult to forecast over the past five years. It also means that there is a cash-flow loss in 2006 as there will be no longer be anything to bring forward. Hence the zero increase in CT forecast by the Dept for 2007. There is, however, an offset. McCreevy, clever fellow that he was (and an Accountant), timed this to coincide with the ending of SSIAs which will boost Income Tax by 500 million or so.
In third place, contributing an unexpected 327 million, we have Income Tax.
This was another surprise. IT had been poorly all year and, though it had picked up a bit in recent months, was only 150 million ahead of profile at end-Oct. It is likely that it was Schedule D receipts from the self-employed that explain the surge. If so, this tells us nothing about the economy in
2006 as the payments would have related to the year ended 31 Dec 2005 for the most part. It was, however, sufficient for the Dept to assume that much of it will carry over to next year and their 2007 IT estimate is up by about 12% (net of SSIAs) as compared with 9% a year ago.
Next in the pecking order came VAT, 134 million, though this can be ignored as much of it merely made up for a shortfall in Oct.
Finally, we come to Stamp Duties which produced 119 million extra, less than the 149 million produced in Sep.
By deduction, we find that the Dept expects an overshoot of only 45 million in Dec, low by reference to the average 200 million in the 10 months to Oct, but comparable with the 27 million overshoot in Dec 2005.
The spending data show that the scale of the underspend, particularly on capital, is growing but the Minister is unlikely to acknowledge this in the Budget. Instead, he is more likely to let us wait until early January when the focus will be elsewhere. The bottom line, however, is that the 2006 surplus will be even greater than the 2.3% in the White Paper.