Thursday, July 6, 2017

Some other trends in government revenue

The last post looked at the question as to whether the slow down in the growth of Exchequer tax revenue is reflective of underlying trends in the economy.  The conclusion was that while there has been a slow down in the growth of tax revenue it is due to factors that do not reflect underlying trends in the economy such as the 2015 level-shift in Corporation tax, the 2016 spike in Excise Duty and €2.2 billion of revenue reducing measures over the past three budgets.  Any concerns about the slowdown in tax revenue growth should be limited to the impact on the public finances rather than what it might imply for the economy in general.

Of course, Exchequer tax revenue isn’t the only source of government revenue though for a variety of reasons it attracts the most attention.  A broader measure of government revenue would include PRSI, other appropriations in aid collected by government departments and Exchequer non-tax revenue such as the Central Bank surplus, semi-state dividends, capital resources and income related to banking measures such guarantee fees and interest and dividends from certain banking assets.  So what is happening to these?

Central Government PRSI and Other Revenue

We have a divergent picture.  PRSI receipts have been growing steadily and in June recorded growth on a 12-month basis of 8.4 per cent.  For the year-to-date PRSI is 2.5 per cent or €116 million above profile in contrast to Income Tax which is €214 million behind profile.

The sum of Exchequer non-tax revenue and other appropriations-in-aid has been declining since the final quarter of 2014.  In November 2014, the 12-month sum of these revenues was €7.5 billion while for June 2017 the total was €5.0 billion.

This is due to falls in most of the items that are included in the category.  The surplus from the Central Bank with a general government impact was €1.4 billion in 2014 but was less than €1 billion this year.  €420 million of bank guarantee fees were collected in the year to January 2014 while the current total is less than one-tenth of that.  Around €500 million of dividends were collected by the Exchequer in both 2014 and 2015, last year it was less than €200 million.  Capital resources were boosted in 2014 by the €335 million received from the sale of Aer Lingus shares.  Other appropriations-in-aid have fallen from €4 billion to €3 billion though it is not clear why this is so or how it is linked to the expenditure of those departments.

The takeout is that while Exchequer tax revenue and PRSI receipts are growing, Exchequer non-tax revenue is falling.  This is a not surprise though.  Exchequer non-tax revenue to the end of June was €1,309 million compared to a profiled amount of €1,310 million.  Other appropriations-in-aid are also down year-on-year but are in line with expectations.

An issue may be when the growth rate of net expenditure is compared to the growth rate of taxation when it is known that non-tax sources of revenue are falling.  Using broader measures of central government revenue and expenditure may capture more information.

Central Government Revenue and Primary Expenditure

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