Thursday, May 5, 2011

April Exchequer Returns: Illusion and Reality

We now have the Exchequer Returns for the first third of the year.  While things do not appear to be getting worse, it is still clear that there is a way to go before things start getting better.  The public finances are a mess.  Here are the April documents.

As a result of the changes announced in December’s Budget we have to be careful about making direct comparisons between the 2010 and 2011 figures.  As it stands tax revenue is now 6.7% up on 2010.

Cumulative Tax Revenue to April

Tax revenue is up just over €600 million on last year but most of this can be attributed to a “bump” in April.  It is not clear that this will be maintained and the DoF Information Note suggests that some of this can be attributed to the early receipt of DIRT payments.

Monthly Tax Revenues to April

We can get a better picture if we look at the changes by the main tax headings.

Monthly Tax Revenues to April

The increase, such that it it, is entirely due to the 20% increase in Income Tax collected.    The first thing to note is that some of this is not actually an increase at all, just a reclassification. 

In the Budget the previous Income and Health Levies were replaced by the Universal Social Charge (USC).  While the Income Levy was included under Income Tax, the Health Levy was actually an “appropriation-in-aid” for the Department of Health and Children and did not enter the Exchequer Account. 

Money raised by the Health Levy went directly to the Department.   In 2010, the Health Levy generated €2,018 million in revenue.  It is likely that at least  €400 million of that would have been collected by April.  Under the USC this money now enters the Exchequer Account.  A substantial portion of the increase in Income Tax is due to this.

There also appears to be some timing issues with DIRT with about €120 million paid earlier than expected.  We can expect subsequent Income Tax receipts to be lower because of this.  The DoF Information Note does provide one year-on-year comparison that can be made.

PAYE receipts show the impact of the Budget 2011 income tax measures but as they do not include receipts from the USC, they allow for a comparable year-on-year analysis to be made. PAYE receipts in the first four months of the year amounted to €2.8 billion, a 4.9% increase on the same period in 2010.

It would be good if the Department provided the breakdown of Income Tax revenue that they obviously have but they give us this little titbit.  This suggests that PAYE receipts are up about €130 million on the year.  This is not because of any labour market or employment improvements.

In last December’s Budget, tax credits were reduced to bring more people into the tax net and tax bands were reduced so that people begin to pay the top rate of 41% at a lower level.   All told these changes were expected to bring in over €850 million in extra revenue in 2011.  It is pretty much a guess on my part as we do not know how much of this €850 million would derive from the PAYE sector, but I would guess that after a third of the year it would be more than €130 million.

I think it is pretty clear that once we account for the reclassification of Health Levy receipts, the once-off bounce in DIRT receipts and the expected changes in tax credits and bands that Income Tax is performing worse than it was last year and that any rise in receipts is illusory rather than reality.

No comments:

Post a Comment

April Exchequer Returns: Illusion and Reality @ Unsecured Loans Proudly Powered by Blogger