Tuesday, September 4, 2012

Tax Revenue Profiles

While the headline is that “tax take is €365 million ahead of target by end of August” it is useful to go behind the numbers a little bit.  The documents from the Department of Finance are:

Tax revenue is clearly €365 million “ahead of profile”.   It was forecast that €21,711 million of tax would be collected by the end of August.  The outturn is €22,076 million.  However, there are a couple of points to note about the profile.

A revised profile was released on May 2nd to account for delayed Corporation Tax receipts from 2011 and the reclassification of some PRSI receipts as Income Tax that affected the first quarter figures..

As we previously pointed out the revised profile starts with a figure of €8,396 million of tax revenue to the end of March when it was known for a month before the profile was released that €8,722 million of tax had actually been collected in the first three months of the year.  It helps to be “ahead of profile” when you use a profile that is more than €300 million below what you already know has happened.

So how have tax revenues fared in the months since the release of the revised profile.  These are department projections for May, June, July and August and how they compare to the actual outturn.

Tax Forecasts for August 2012

Since the effective tax profile was released on the second of May, tax revenue is €21 million behind expectations.  This is only a shortfall of 0.3% but it can be seen that the total figure is being supported by a €143 million boost from Corporation Tax.  The performance of Income Tax and Excise Duty are significantly below expectations.  Here are the monthly comparisons for total tax revenue.

Monthly Tax Forecasts to August 2012By the end of June tax revenue was more than €500 million “ahead of profile” but about a third of that has been given up in the past two months, with August in particular falling well short.  The DoF documents show that Income Tax and Excise Duty account for most of the shortfall.

Monthly Tax Forecasts August 2012

The relatively good performance in the first six months of the year means that this month’s deterioration is unlikely to threaten the budgetary arithmetic and the end-year target of €36.4 billion.  Tax revenue is “ahead of profile” for the year but the performance is not as strong when limited to the period since the profile was actually released.

It is likely that over the coming months there will be more months where tax revenue is “behind profile”.  This could be a function of the projections as much as it is of tax performance.  This is a by-product of moving more than €300 million of taxes from the actual receipts for January to March to the projections for April to December.   By year-end it is probable that receipts will continue to move from the current €365 million ahead of profile closer to the €36.4 billion annual target.

2 comments:

  1. The Excise figures to date broadly reflect poor car sales (VRT). There is also the smuggling issue in relation to cigarettes and the well publicised fuel problems involving major criminals. Current Revenue staffing levels make any action to tackle these issues well nigh impossible.

    However the ongoing decline in Income Tax figures for July & August (tax deducted on Income received in June & July) is much more surprising and raises interesting issues. The Table below sets out the figures

    Year 2011 2012

    July 1239 1266 difference 27M

    August 1011 1029 difference 18M

    Taking into account the incorrect allocation of USC as PRSI in 2011, approx. €25M per month, Income Tax actually declined year on year.

    Tax adjustments in the 2011 & 2012 Finance Acts together with substantial salary increases in certain employments should mean that income taxes are increasing substantially over 2011. The figures point to me that there is a compliance crisis, i.e. collection of taxes is not working.

    The level of missing Income taxes (not VAT) specifically points in the direction of the Public Sector which collects little VAT, but which is responsible for collecting & remitting in the order of 30% of Income Tax.

    I would suggest that there is a developing tax compliance problem in some of the largest Public Sector employers, in the Health Service and perhaps also in large Educational institutions. Are certain State bodies delaying making tax payments to fund day to day expenditure? This raises profound questions, particularly how much knowledge do Ministers have of late payments of taxes by bodies under the aegis of their Departments?

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