Friday, 4 June 2010

May figures

An Saoi: May’s Tax figures suggest little sign of a pick up, despite the Dept of Finance’s brave effort to suggest that all is still on target. If there was any real improvement happening, then the tax figures should be beginning to show it. They are not. We remain over 10% below last year’s levels. The drop is not uniform, with perhaps small signs that those who have kept their jobs are wandering back into town on paydays.

Income Tax figures are 8.9% behind last year, and a full €219M below their estimates made just four months ago. This is perhaps the most worrying of all the figures. The publication of the most recent unemployment figures on the same day emphasised the point made so many times here – Tax flows from economic activity, not from cutting the economy further.

The Corporation Tax figures continue to show our addict-like dependence on multi-nationals, in particular big pharma & US computer software companies. Most of this month’s money may have come from just a handful of companies. Because companies pay their preliminary tax on fixed dates based on their accounting year end, payers in May would have either a 30th June year end or 30th November. Next month will see the first payments from companies with a 31st December year end, which makes up the majority of Irish companies

Jack Fagan in Thursday’s Irish Times Property supplement suggested that Executor led sales had picked up, however the Stamp Duty figures suggest that there is no bottoming out at all yet. Payments are 17.3% below last year and more alarmingly 14.3% below expectations. Capital Acquisitions Tax is ahead of both last year and profile, which perhaps confirmation of Mr. Fagan’s comments.

Capital Gains Tax is also down 41.4% on 2009, but is up on profile, but is miniscule compared to previous years.

The VAT figures were reasonable, reflecting a slowing in the rate of decline in retail purchases. The Central Bank’s analysis of credit card spending confirms this trend. A drop in the number of people shopping in the North may also have assisted. The suicidal dependency of all of the Irish banks on interbank borrowing to fund their loan books will ensure that providing new loans to Irish business or public will remain a dream.

There is a massive latent VAT bonanza for the State if even a small number of the empty new builds are sold, as effectively one sixth of the price will go to the State in VAT. However, sales are very unlikely for many years.

The forthcoming funding crisis facing not just the Irish banks, but all those banks across Europe who became dependent on the crack cocaine of banking, inter bank loans, will adversely influence the rest of the year. Even the dealer of last resort, the ECB, will not be able to deal with the demand.

There is a major caveat on all these figures – The Revenue provides no summary of outstanding refunds. Corporation Tax & VAT refunds can be huge, particularly VAT refunds for service exporters and the overhang can be substantial and material to the overall totals. There has been constant innuendo that the Revenue have slowed up the issuance of refunds, which maybe partially caused by the lost of experienced staff.

Without a substantial pick up in the economy happening very quickly, I cannot see the Minister getting close to his projection and remain wedded to my previous estimates.


Anonymous said...

Thanks for these excellent posts - not many people seem to look carefully at the budget. Revenue figures do seem disastorous, but what makes you think the expenditures cannot be kept below the budget plan? So far total current spending is down 3% to end May yoy, while the budget plan calls for it to rise 10% in 2010. Any chance they will simply not implement the spending side of the 2010 budget if revenues don't rise?

An Saoi said...

Thank you for your comments.

On the expenditure side, there is huge pressure in a number of areas, mainly education, health & Social Welfare.

In the case of education, there will be a considerable increase in the numbers of children in school next September. Additional teachers will be required. The pressures on the Health Service are also driven by demographics & SW spending by a lack of jobs/emigration.

Almost all of the cuts to date have been on the capital side, the current side is much harder to hit quickly.

My own view is that they will need to get about €1,200M off the wage bill. This is about 5% of those employed or a 6% wage cut to do the same job.

Looking at the figures in detail, it is hard to see the tax figures coming in higher than €29,700M. However the continued weakness of the € against £stg has considerably helped. I hear home holidays are winning market share, which will also help. What a pity that the money wasted on the car scrappage scheme was not spent cutting VAT on home holidays rather than on imported cars.

The Govt. has little or no control over most current expenditure. This is why I think there will be pay cuts.

On the spending side, I would expect to see increased use of credit cards over the summer with spending on them increasing on a yoy basis and this will fund a small increase in some areas of consumer spending. But the forthcoming cash crisis for the banks will see them hoard all their cash. My guess is at this stage is that it is going to be a long cold winter after the occasional sunny period this summer.