An Saoi: The half year tax figures came out during the week and there have been various comments published around them. Constantin Gurdgiev’s piece is available here and is full of nice colourful graphs and gives a multi-year view of payments. I want to focus in on just two of the tax heads, Corporation Tax & Income Tax this month. Both suggest trouble ahead.
Corporation Tax paid in June was €824M net against a monthly target or profile of €871M. This follows on the May when €310M net against the profile figure €450M. All companies have now made the first of their two Corporation Tax payments and the Revenue now have all of the information required to figures are extremely worrying.
The figure is also well below the cumulative figure at June 2010 €1,424M against €1,610M. The 2010 figure would surely have been heavily influenced by refunds arising from losses made by companies in their trading years 2008 & 2009. This makes the continued slippage in 2011 even more alarming and suggests that the final CT figure for 2011 will hardly break €3,400M or around €600M below profile. Back in April after the March tax returns, I had expected Corporation Tax figures to come in at €4,800M, well ahead of profile. This projection was based on the level of trading of many International firms with large presences in Ireland. All of these companies have now at least part paid their current liabilities and there is no way the Exchequer will get close to its target.
We know that the level of trading losses within the financial services industry was at least €34,309M arising from a Dail question. The only journalist to pick up the importance of the story was Kathleen Barrington here in the Sunday Business Post. The level of payments being made by the historically large payers outside of the financial services sector must also be falling, suggesting greater internal pressure to reduce the tax cost of doing business in Ireland. Even 12.5% is too high. This is despite increasing profitability and turnover in those companies.
Few Valued Added Tax returns fall due in June and the overall level of payments for the month was small. However the figure €208M was €42M or 16.8% short of profile. However timing of refunds may explain such a large discrepancy.
The May/June VAT returns are due this month (July) and should be reasonably good. June was the last month and as can be seen from these SIMI Stats, it was a good month in the motor trade. However the rest of year will surely be poor as over 40% of car sales were part of the scrappage scheme. Preliminary retail sales figures for May showed non motor trade spending continues to fall. This would suggest that VAT for the year is unlikely to break €10,000M for the year, probably coming in somewhere between €9,600M & €9,800M.
Income Tax incorporating the USC remains on target. While it is nominally ahead of last year, when you take the substantial tax changes in the Finance Act and the replacement of the Health Levy with the USC, it is behind perhaps €300M against the same month last year on a like for like basis. There is an expectation of increased income tax payments for the rest of the year, which seems more of a hope than expectation, but only time will tell. Employment and wage levels continue to fall but perhaps self employed payments will bail the State out later in the year?
Excise Duty remains ahead of target buoyed by the new car sales. The next six months may reflect a different story. Stamp duty remains in the doldrums.
Movements in the other taxes do not materially change the picture as their collective contribution is so small. Customs Duties are collected by the State on behalf of the European Union and while included in the figures are remitted to the EU, minus 40% to cover local costs.
The final outcome suggests that the cumulative tax changes introduced by the outgoing Government have not improved the Exchequer position. Retail activity other than in the car trade continues to fall and with the tax take following suit. The fall in Corporation Tax was not expected, least of all by me and shows just how fickle the multi national sector’s relationship with Ireland is.
June’s figures may also explain Mr. Noonan’s comments about the necessity to find even more than the €3,600M in planned cuts. It would be helpful if he let us all in on the information he has been given by his officials. The final tax yield for 2011 looks as it will fall a good deal short of the €34,900M.
There is an urgent need to expand the Tax base and the Social Insurance base by withdrawing without delay all the various tax breaks, deductibility of interest against property purchase, carry forward of losses, exemptions applied to certain income etc.
The effects of the tax changes introduced this year also make it clear that there is a need to selectively reduce the tax burden but certainly not to increase rates. Proposed changes in the standard rate (21%) VAT rate should not be introduced under any circumstances and a substantial rowing back on the effects of individualisation should also be considered to protect the position of many one income households.
The need to get property related business costs down without delay needs to be tackled with the same alacrity as Richard Bruton has pursued the low paid.