Irish Economy
Irish Exchequer Returns: Total tax revenues were close to target in the first half of 2011
By Finfacts Team
Jul 4, 2011 - 5:03 PM

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Irish Exchequer Returns: Total tax revenues were close to target at just 0.7% (€115m) below expectations in the first half of 2011. Income tax and excise duties were up while VAT and corporation tax were below target.

The Exchequer deficit at end-June 2011 was €10.8bn compared to a deficit of €8.9bn in the first six months of 2010. The year-on-year increase in the deficit was primarily caused by the €3.08bn in non-voted capital expenditure Promissory Note payments to Anglo Irish Bank, Irish Nationwide and EBS. Excluding these, the deficit fell by over €1bn.

The Department of Finance said as part of performance criteria agreed with the EU-IMF, a target for the end-June 2011 Exchequer primary balance  -- i.e. the Exchequer balance excluding Exchequer debt interest payments – of -€10.9bn was set.

At end-June, Exchequer tax revenues and PRSI receipts amounted to a combined €19.3bn, some €0.8bn above the estimate in the EU-IMF agreement. This means that the cumulative Exchequer primary balance target at end-June 2011 was adjusted to -€10.1bn.

Excluding Exchequer debt interest payments of €2.4bn in the first half of the year, the actual cumulative Exchequer primary balance at end-June 2011 was -€8.4bn meaning the target set as part of the Joint EU/IMF Programme was met.

Tax revenues at end-June 2011, at €15.3bn were €847m or 5.9% higher than in the first half of 2010. Year-on-year increases in income tax  -- primarily due to the introduction of the Universal Social Charge (USC) and other Budget 2011 measures - - excise duties and customs duties offset year-on-year declines in corporation tax and the capital taxes, including stamp duty and a small year-on-year fall in VAT receipts.

The Department said encouragingly income tax receipts were in line with target at end-June and excise duties recorded a €79m surplus. However, VAT and corporation tax- - the two other “big four” taxes - - both recorded shortfalls against target in the first six months, at -€134m and -€116m respectively. Each of the smaller four tax-heads performed in line with, or above, expectations in the period to end-June.

Total net expenditure at end-June, at €21.9bn, was €399m or 1.9% up year-on-year. Net voted current spending was up €892m or 4.5% whereas net voted capital expenditure was €493m or 26.8% down year-on-year. The reclassification of health levy receipts to form part of the USC has the effect of increasing net voted expenditure. Adjusting for this, it is estimated that total net voted expenditure declined by 1.7% to end-June.

Total net voted expenditure was €343m or 1.5% below target at end-June. Net voted current expenditure was €219m or 1.1% below profile with the main underspends on the Social Protection and Agriculture, Fisheries & Food Votes. The Social Protection Vote underspend of €122m was mainly due to higher than expected PRSI receipts which more than offset excess expenditure across a number of schemes. The €92m underspend on the Agriculture, Fisheries & Food Vote was due to earlier than expected EU receipts.

Net voted capital expenditure was €124m or 8.4% below target at end-June, primarily due to shortfalls in the expenditure of the Health, Environment and Agriculture Votes of €40m, €33m and €22m respectively. These shortfalls against target were primarily timing related and it is expected that they will be made up over the coming months.

Total debt servicing expenditure at end-June 2011, including funds used from the Capital Services Redemption Account (CSRA) - - which do not impact the Exchequer - - was over €3bn. Excluding the sinking fund payment which had been made by end-June in 2010 but which has not yet been made in 2011, debt servicing costs in the first half of 2010 were just over €2.2bn. The year-on-year increase in comparative debt servicing expenditure of close to €800m reflects the cost of servicing a higher debt burden.

Commenting on the end-June 2011 Exchequer Returns, Minister Noonan said: The Exchequer deficit in the first six months of the year, at €10.8bn, is in line with my Department’s expectations at this point in the year. Excluding banking related payments in the first half of 2011, the deficit decreased by over €1bn.

Although there is some weakness in certain tax-heads,the Budget day target for tax revenue in 2011 of €34.9bn remains achievable, especially given the expected boost to taxes this year from the pension levy introduced to fund the Jobs Initiative."

Commenting on expenditure in the first six months of 2011 Minister Howlin added:
“I welcome the fact that overall voted expenditure is being managed within the limits set out for the year and at end-June was 1½% below profile. This reflects the ongoing tight control of public spending. We must ensure that this tight control is maintained over the coming months and that emerging pressures, of which there are some, are managed by Government Departments from within their existing allocations."

End June Exchequer Statement

Analysis End June Tax Receipts

Analysis End June Voted Expenditure

Conall Mac Coille, chief economist at Davy, commented:

Tax revenue in line with expectations, up 5.9% on 2010

  • Tax revenue in the first half of 2011 was 0.7% behind target and up 5.9% on H1 2010;
  • Value added tax receipts were 2.6% behind target in the first half, but the shortfall has diminished from around 5% earlier in the year;
  • Corporation tax receipts were 7.6% behind target in the first half compared with a 10.4% shortfall in the year to May;
  • Around one-third of corporation tax revenue is collected in May and June, so the shortfall is likely to persist;
  • Income tax and excise duties continue to outperform expectations.

Spending in H1 below the Budget 2011 target profile

  • Total voted expenditure was 1.5% lower than anticipated for H1. This comprised 1.1% lower current expenditure and 8.4% capital expenditure;
  • Overall, voted expenditure is up 1.9% compared with the corresponding period of 2010, but down 1.7% once the reclassification of health levy receipts is accounted for;

Underlying Exchequer balance €1bn below level in H1 2010

  • The Exchequer deficit was €10.8bn in H1, up from €8.9bn in 2010. However, this entirely reflects the €3.1bn payment of promissory notes in March already included in the general government debt;
  • The outcome for the Exchequer balance in H1 2011 meets the conditions set out in the agreement with the EU/IMF.

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