January Exchequer Returns

The first Exchequer Returns of the year have been released by the Department of Finance.  Here are the key documents.

• Exchequer Statement
• Analysis of Tax Receipts
• Analysis of Net Voted Expenditure
• Information Note from the Department

You can find a comparison of the performance of tax receipts for the eight tax headings for January 2010 and 2011 in the Analysis of Tax Receipts document linked above.  Here is a table that goes back to 2007.

Although the annual comparison is positive (+€57 million or +1.9%) if we look over a longer time frame we can see the scale of the collapse in Irish tax revenues (-€1,614 million or –34.0% since 2007).

As could be expected a lot of this fall is due to the virtual disappearance of revenues from our the largely property-dependent transaction taxes (Stamp Duty, CGT and CAT) which have fallen from a combined total of €556 million in 2007 to a paltry €66 million in 2011.  However, this only accounts for one-third of the fall in tax revenue.

Although Income Tax continued to show annual declines in 2011, it is ‘only’ €120 million (but still 10.8%) down on the 2007 level.  The bulk of the drop in January Tax revenues is accounted for by our consumption taxes (VAT and Excise Duty).  These brought in €2,798 million in 2007, but only raised €1,955.   This €843 million fall (or 30.0%) in these two tax heads accounts for more than half of the total drop seen in January tax receipts since 2007.

The 39.7% drop in Excise Duty revenues has come in the face of increases on duties on fuels via the Carbon Tax in two recent budgets (though there was an offsetting reduction in duties on alcohol).  Our VAT rates have remained unchanged, receipts are down 28.2%.  This is likely driven by the grounding of the construction sector to a virtual standstill and a reduction (as well as a reorientation) of consumer spending.

Thankfully, in January we do not get the charade of having the real tax returns compared to the artificial forecasts of the Department of Finance.  Expect this to resume in February as today also saw the release of the Profile of Tax Revenues for 2011 which provides details of the monthly and cumulative expected receipts across the eight tax heads.

Here is a simple comparison of the cumulative total tax revenue forecasts for 2011 to the 2010 performance.

Even with the changes announced in the recent budget tax revenues in the early part of 2011 are expected to be very similar to those seen in 2010.  It is only from July onwards that any improvement is forecast.  [The DoF forecast does not seem to account for the change in the ‘Pay and File’ deadline that went through with the recent Finance Bill (Act?).]

On the expenditure site is it noteworthy that Current Expenditure continues to rise (up €24.4 million to €3,722.1 million this year from €3,697.8 million last year.  As a result of the reorganisation of Government Departments last March it is hard to identify the source of this increase and given the smoke and mirrors of the Irish system of public finances the DoF Information Note attributes this increase in expenditure “to the reclassification of health levy receipts”.  Expenditure is up because receipts have been reclassified. Huh?  More on this here.

Capital expenditure is down €220.8 million but the bulk of this is due to a fall in capital receipts to the Exchequer from EU Agriculture programmes and an associated drop in capital payments.

On the non-voted side the stand-out figure is the huge drop in interest payments which fell from €311 for January 2010 to €32 million.  Has someone done a stellar job in renegotiating the EU/IMF interest rate?  Of course not, and with our increased borrowings or debt service costs must surely be higher than 12 months ago.  What has actually happened is that debt interest in the early part of the year is been paid for from something called the Capital Services Redemption Account (no, me  neither).  Unlike the Exchequer Account, this CSRA does not need a monthly return published so we will be in the dark on our debt interest costs for a while and annual comparisons will be difficult though we do know that this source will fund €600 million of debt interest.

Overall, the Exchequer Account shows a lower deficit of €483 million for January 2011 compared to €778 million in 2010.  However, of this €295 million we can immediately account for €228 million due to the re-categorisation of debt servicing costs.  And if debt interest costs are higher than last year (which they undoubtedly are) it is probable that all of this €295 million ‘improvement’ is eliminated.