Thursday, July 7, 2011

Mid-Year Exchequer Returns

The Exchequer Returns covering the first six months of the year have been released by the Department of Finance.  Here are the associated documents.

Here we will focus on the performance of tax revenue for the first six months of the year.  Tax revenue is up on 2010 but the rate of increase is lower than the 6.7% seen in April.  By the end of June, tax revenue was €847 million ahead of last year but as we will see below this is likely to an illusory increase.

Cumulative Tax Revenue to June

Every month this year has seen an increase in tax revenue compared to the same month last year.  The increase was largest in April and we explored the reasons for that here.

Monthly Tax Revenues to May

Here is a look at the revenue by the eight main tax heads reported in the Exchequer Account.  It is clear that all of the €847 million increase in tax is attributable to tax collected under the Income Tax heading.  The key barometer tax VAT is down on last year.

Cumulative Tax Revenues to May

According to the QNHS employment in the first quarter of last year was 1,857,600 and this had fallen to 1,804,200 in the same quarter this year.  The Earnings and Labour Costs Survey has average weekly earnings falling €683.43 to €674.56.  So the two key measures that feed into income tax, the number of workers and their earnings, are both down on last year.  It is pretty evident that it is not a labour market improvement that is driving the increase in Income Tax.

Income Tax is up just over €1 billion, but the €2 billion that was previously collected by the Department of Health as the Health Levy is now included under the Income Tax heading in the Exchequer Account following the introduction of the Universal Social Charge.  It is pretty clear that if a like-for-like comparison was made with last year that Income Tax revenue would be down. 

It is only because of changes in the system of public finances that it appears to be up.  We continue to collect less tax revenue rather than more.  Changing the name of money previously collected as a levy to a tax does not mean that more money is being collected.

You can read some of my views on the overall Exchequer Balance in this post over on The Irish Economy blog.

1 comment:

  1. Seamus,
    From what I can see the €1bn "improvement" has come mainly from two main sources neither of which indicate an improvement in the underlying economy or the state's finances
    • €450m reduction in voted capital expenditure. Capital expenditure is 8% behind profile. and now makes up only 6% of net voted expenditure which effectively amounts to little more than care and maintenance of the capital infrastructure.
    • There is €595m in income under “non tax revenue” from the Bank Guarantee, at this stage last year it was zero. It didn’t hit the exchequer statement until October 2010 (see last year's statements attached). This is artificially boosting the position at this stage of the year.
    • 9% of receipts are now “non tax revenue”, essentially income from the guarantee (which drives the banks nearer the edge) and the surplus from the Central Bank. What happens if / when the Central bank finds the collateral it has received for its emergency lending to banks is worthless and it is forced to take a huge write-down.