Irish Exchequer returns for January, published today by the Department of Finance show tax receipts were down 17.7% compared with January 2009. The total deficit for the month was €780m, compared with €747.2m in the January 2009.
Tax receipts fell to €3 billion, from over €3.7 billion in 2009 while spending dipped 13% to just over €4.1 billion. Income tax receipts of just over €1 billion were almost 10% down from January 2009
VAT dropped by 17.9% to €1.6 billion, which is bad news on consumer spending.
SIMI, the car industry group, reported on Monday that sales of new cars had risen in January but the plunge in VAT was compared with January 2008 - - a bad period, just months after the collapse of US investment bank Lehman Brothers, signalling that the recovery in consumer spending has yet to begin.
Corporation tax dipped 66.5% to €41m, while the take from stamp duties plunged 40.9% to €30m.
Excise duties declined 16% to €260m.
Interest on the national debt rose from €109.4m to €310.8m.
Current pending fell in most departments but was up 15.6% in Social and Family Affairs.
End January Exchequer Statement
End January Analysis of Voted Expenditure
Profile for Tax Revenue 2010
Profile for Culmulative Tax Receipts and Debt Servicing Expenditure
Davy chief economist, Rossa White, commented:
Tax revenue down 17.7%, close to trend at end-2009
- Tax revenue fell 17.7% year-on-year last month. That was a touch better than the end-year 2009 run-rate of -19%. It is best to look at the trend excluding-corporation tax where payments dates changed during 2009. Ex-corporation tax, the annual decline was 16.1% versus the 18.4% run-rate at end-2009.
- These figures are not affected by the early January freezing weather. VAT is paid bi-monthly and relates to November-December. The decline in VAT of 17.9% year-on-year in that period was similar to the 17.7% drop related to September-October. It suggests that spending was sluggish in the pre-Christmas period. Keep in mind that the first few days of post-Christmas sales i.e. last week of December were blighted somewhat by weather. Excise, too, was fairly weak at 16.2% (considering that it incorporated the new carbon tax), although the shorter lags involved perhaps imply a small January impact.
Tax profile points to helpful base effects during the year: excise and VAT forecasts may have upside
- The Department of Finance released also its tax profile for 2010 today. Revenue is expected to decline 6% for the year. But the (depressed) base effects are favourable as the year progresses. So much so that in the March-July period, revenue may not be much lower on an annual basis.
Net voted current expenditure looking good so far
- Net voted current expenditure fell 11.9% yoy in January. That compares with the full year forecast (at Budget time) for a 0.4% decline in net voted current expenditure (i.e. taking into account the revenue collected directly by government departments).
Retail Ireland Director Torlach Denihan said: "The 17.9% year on year decline in the VAT receipts highlights the very difficult trading situation facing the retail sector. Sales are down due to reduced demand and the fact that prices have been cut across the board over the last year. In other words, consumers got more for their money.
"With retailers taking in less money at the tills the employment prospects for the sector are a very serious concern. To cope with declining sales, retailers need help to cut the costs of running their businesses. Landlords are not doing enough to cut rents and the government has yet to take action to reduce the cost burden it imposes on the sector. It should build on the decision to ban upward only rent reviews for new leases by addressing unsustainable rent costs through a process facilitated by the government. Unless there is action in these areas, as well as pay moderation, many more retail staff will join the 30,000 retailer employees who joined the Live Register in 2009."
Ulster Bank economists Simon Barry and Lynsey Clemenger commented:
Revenue: The latest tax revenue figures for the month of January indicate that the road to improvement in the public finances is likely to be a bumpy one. Total receipts in the month came in at €3.074 billion, some €660 million or 17.7% behind the corresponding figure in 2009. This was a disappointing outturn, given that tax revenue in the month of December was some 19% ahead of a year earlier.
In terms of the detail, the tax heads most closely-linked to the labour market and consumer spending were the main sources of revenue weakness in January. Income taxes fell by €113 million compared with year-ago levels. In percentage terms, this translates into an annual decline of 9.7% - a modest acceleration on the 9.3% fall recorded in December. However, the main source of downward pressure on tax receipts in January was VAT. This fell by €353 million compared with a year earlier, thus amounting to over half of the total fall in tax revenue in the month. This said, there is some evidence of an easing in the pace of decline in VAT receipts. While the 18% annual fall in January is certainly significant, this compares favourably with the 24% drop in December and the average fall of 21% in 2009.
While the January figures were worse than we had expected, we are still of the view that the Government projection for total tax revenue in 2010 is on the conservative side. Budget 2010 forecast tax revenue for this year at €31.05 billion, some 6% behind the 2009 outturn of €33.04 billion. However, the macro economic assumptions behind Budget 2010 look overly pessimistic to us, with GDP forecast at -1.3% for this year. Based on our latest set of forecasts released last week, we expect GDP to fall by 0.5% in 2010. While base effects will provide some help along the way, we will need to see an improving trend in tax receipts over the course of 2010, if the full-year picture is to beat the -6% target from the from the 17.7% decline observed in January.
Spending: On the spending side, there was clear evidence of restraint on both voted current and capital expenditure. Net capital spending is down 21% compared with January 2009 levels. The December Budget projection, taken together with the subsequently released outturn for the full year 2009, implies a decline of some 15% for the coming year in net capital spending. So the January numbers point to a stronger pull back than has been budgeted for the full year, though the nature of capital projects means it is way too early in the year to read too much significance into this.
But perhaps more noteworthy is the recorded fall in current spending, which is down almost 13% on year-ago levels. This is a much larger decline than the tiny 0.2% fall implied by the Budget arithmetic. While it is early days in 2010 of course, this is an impressive start to the year in terms of spending discipline. This point is reinforced by the fact that spending restraint is evident across government departments, with thirteen of the total of fifteen departments showing spending levels below (substantially in cases) the same period last year. The result is that net current spending is running some €500m lower than year ago levels, a very helpful contribution indeed to the fiscal consolidation effort.
Outside of day-to-day spending, the increasing burden of debt service was apparent in today’s numbers, with debt servicing costs in January reaching €311m, over €200m higher than last year.
Summary: Overall, January was a somewhat disappointing month for exchequer tax receipts, though we do expect the situation to improve over the balance of the year as the expected improvement in the economy takes hold in coming quarters.
While the revenue side of the 2010 ledger is now largely beyond the control of the Government at this stage (barring another unscheduled Budget which isn’t at all likely), its spending decisions are certainly within its sphere of influence. One month’s numbers don’t make a trend of course, but we view positively the clear evidence of spending restraint which has come through in the January numbers, especially the broad-based nature of the pull-back in current spending.
