Saturday, 3 April 2010

Crucifixion Friday

An Saoi: The Irish title for Good Friday is Aoine an Chéasta or 'Crucifixion Friday'. I gather that the traditional method of crucifixion involved a slow painful death and of course the English word “excruciating” literally “out of crucifixion” describes it perfectly.

As a country we are in an excruciating condition, having been financially crucified by this unholy alliance of Fianna Fáil, the builder/developers and the banks. There is certain appropriateness to the issuance of the first quarter tax figures today.

I go through the taxes in more detail below, but I have a firstly set out my revised projections. The Dept. of Finance still seem happy to stand over the figures they issued just eight weeks ago, which are already 3.5 per cent behind profile.

I commented last month that the Corporation Tax figures seemed to be a matter of concern not just to me, but also to the Dept. of Finance. There has been a complete collapse this month, which has forced me to slash my estimate by 33 per cent to just €2,000M. However I will come back to this figure again after seeing the May figures. There are signs that many multi-nationals have decided that they can move from a low tax regime here to a no tax regime also here, using the increasing number of incentives on offer to them.

I have also adjusted upwards the Excise and VAT figures. The adjustments are based on the take up of the car scrappage scheme. What a pity that instead of a scheme sucking in imports, we did not decide to encourage activities with almost 100 per cent local input, such as slashing VAT on restaurants and hotels.

Capital Gains Tax is well ahead of profile but far below the position of last or earlier years. But all of the other taxes show little signs of life in the zombie that is the Irish economy. The additional CGT payments may be the result of a small number of investors crystallising gains previously sheltered in investment holding companies.

The Government are assuming that there will be a pick up later in the year, which will lead to higher taxes, but as retail lending rates increase and households get their personal balance sheets in order, it is very hard to see this happening. Employment numbers continue to fall and it is hard to see where the extra demand will come from.

This month I decided to see what some other commentators have said about the tax forecast. To hell with the realists/pessimists and read what an optimist has to say!

A little while ago, I was sent a copy of Bloxham’s Irish Quarterly Economic Outlook. Alan McQuaid has always been a little bit of an optimist but he surpassed himself here. His tax forecast is extraordinary, see Table below, and is €675M higher than the Dept. of Finance’s total and over €3,500M away from my figures.

He is suggesting that the decline in GDP will be just 0.8 per cent in 2010 and of 3 per cent in GNP. He also is suggesting a much lower borrowing requirement than anyone else.

April is a very quiet tax month and there will be just two figures worth watching, Income Tax to see how the monthly PAYE returns are doing and also the Excise figures for the influence of the car scrappage scheme. May is however a key month with large VAT & Corporation Tax payments due. Any further slippage in the figures will be clear by then and require immediate action. Last month I suggested “Mini-budget and further pay cuts in June? Because there will certainly be no pick up!” Spending is below profile, however it is unclear how much of this was weather-related or for other reasons. Also many planned cutbacks have not yet happened, for example in the Health Service. Many voluntary hospitals and other institutions have only recently received their budgets and are still in discussions with the HSE. I am personally aware of one institution where approx. 10 per cent of frontline staff will be gone by year-end, unless the subvention is increased.

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