Irish Economy
Irish Exchequer Returns: Tax revenues end-July 1.4% above target; Debt servicing up year-on-year up €750m
By Finfacts Team
Aug 3, 2011 - 4:32 PM

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Irish Exchequer Returns: Tax revenues were €263m or 1.4% above target at end-July, according to the latest statement on public finances issued today. Revenues at end-July, at €18.6bn were €1.5bn or 8.6% higher than in the same period last year. Meanwhile, debt servicing or interest paid on the national debt rose €750m.

The Exchequer Returns are not a full statement of the public finances. Social insurance (PRSI) receipts/payments are not included and bizarrely, local government is also ignored.

The Exchequer deficit at end-July 2011 was €18.9bn compared to a deficit of €10.2bn in the first seven months of 2010. The increase in the deficit was due to non-voted capital expenditure banking related payments, including €3.1bn in Promissory Note payments to Anglo Irish Bank, INBS and EBS, and just over €7.5bn in once-off payments relating to the recapitalisation of the banking sector announced following the PCAR stress tests at end-March. Excluding these payments, the Exchequer deficit fell by almost €2bn.

In July, the year-on-year increase in tax revenues was due primarily to higher income tax receipts, arising from the Budget 2011 measures, including the introduction of the USC (universal social charge). Excise duties, corporation tax, customs duties and stamp duties.

Three of the “big four” taxes - - income tax, corporation tax and excise duties - - recorded surpluses in the first seven months of the year. Income tax was €160m or 2.2% above target at end-July. Excluding the beneficial impact of earlier than expected DIRT payments, both in April and July, income tax was a little below target in the first seven months. That said, the underlying performance of income tax in recent months has been encouraging, with the targets for both June and July marginally bettered. Corporation tax was €93m or 6% above target at end-July. The Department of Finance said the very large surplus in the month of July arose partly because of a delay in payments from May. While this was expected, the extent of the delayed payments was in excess of what had been anticipated.

Excise duties recorded a €67m (2.6%) surplus in the first seven months of the year. However, VAT – the other of the “big four” taxes – recorded a shortfall against target in the period to end-July of €190m (2.9%). A significant element of this shortfall has been evident since end-February. The large stamp duty surplus at end-July can be explained by earlier than expected payments of just over €100m in July in respect of the pension fund levy, which was introduced to finance the Jobs Initiative. Each of the other smaller taxes has performed above or in line with expectations so far in 2011.

Total net voted expenditure at end-July, at €25.7bn, was €224m or 0.9% up year-on-year. Net voted current spending was up €813m or 3.5% but net voted capital expenditure was €589m or 26.4% down. Adjusting for the reclassification of health levy receipts to form part of the USC which has the effect of increasing net voted expenditure, it is estimated that total net voted expenditure fell 2.6% year-on-year.

Compared to target, total net voted expenditure was down €536m or 2% at end-July. Net voted current expenditure was €341m or 1.4% below profile. The main underspend was on the Social Protection Vote (-€125m) and was due to higher than expected PRSI receipts which more than offset excess expenditure across a number of schemes. The other main underspends were on the Education & Skills (-€116m) and Agriculture, Fisheries & Food (-€95m) allocations in the Budget. These were largely due to timing issues with respect to certain payments and receipts, and offset pressures arising in other areas of expenditure.

Net capital expenditure was €195m or 10.6% below target at end-July, largely due to shortfalls in the expenditure of the HSE, Environment and Agriculture Votes of €45m, €43m and €30m respectively. These shortfalls against target were largely caused by timing factors and net voted capital spending is expected to be in line with target for the year as a whole.

The Department of Finance said total debt servicing expenditure at end-July, including funds used from the Capital Services Redemption Account was just over €3bn. Excluding the sinking fund payment which had been made by end-July in 2010 but which has not yet been made in 2011, debt servicing costs to end-July 2010 were some €2.25bn. The year-on-year increase in comparative total debt servicing expenditure therefore was €750m.

End July Exchequer Statement

Analysis End July Net Voted Expenditure

Analysis end July Tax Receipts

Conall Mac Coille, chief economist at Davy, commented:

Significant improvement in tax revenues in July: Exchequer returns now ahead of target

Tax revenue 1.4% ahead of target, up 8.6% on the year

  • In H1 2011 there was a small 0.7% shortfall in tax revenue relative to the Budget 2011 targets;

  • This shortfall has been eliminated, as corporation tax receipts expected earlier in 2011 were paid in July;

  • Corporation tax receipts were 7.6% behind in H1, but are now up 6.0% on the Budget 2011 targets.

Most tax headings now ahead of target

  • Excise and Customs are €73 ahead of target respectively, and income tax €160m ahead;

  • The Budget 2011 measures on income taxes are now being seen in the tax returns;

  • Income taxes are 2.2% ahead of schedule, but a little below target accounting for early payments of DIRT.

Spending remains below the Budget 2011 target profile

  • Expenditure was 2.0% lower than expected.

Underlying exchequer deficit down €2bn over 2010

  • The exchequer deficit was €18.9bn in the first seven months, up from €10.8bn in H1 2011, reflecting once off €7.5bn payments relating to the PCAR/PLAR bank tests.

  • We expect these payments will not ultimately add to the general government debt as they are being met by the state's cash balances and NPRF. • Overall, today's exchequer returns are an encouraging sign that the budgetary plans for 2011 are on track.

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