November tax figures - not as good as they seem

An Saoi: Newspaper headlines suggest that the decline in tax revenues is bottoming out, and indeed the November figures themselves look at first glance quite reasonable. But a more detailed analysis may suggest otherwise.

The first issue to consider is how the Central Bank strike last Friday influenced the figures. I understand from friends in the Revenue that repayment instructions were not sent to the Central Bank for some days before the strike, effectively stopping Revenue refunds from 25th November onwards. This is particularly significant in a VAT filing month, such as November, where many repayment claims were only filed electronically on 23rd of the month.

The second issue is the departure of much of the Revenue’s middle and senior management on the Government’s ISER programme. Approval for larger refunds requires sign-off from higher grades, who have been clearing their desks and offices since early November and have not been replaced. Many advisors have complained recently about delays in getting approval for large repayments, and this position will only get worse with the departure of perhaps 25 per cent of Senior Grades.

Thirdly, the fairy godmothers have been at it again. Corporation Tax now exceeds the annual target with one month remaining. This is an incredible performance considering the huge level of corporate tax refunds made this year. For a summary of corporation tax repayments made in 2009 see the written reply to Joan Burton’s question, Ref No: 42636/09 on 24th November.

Looking at the figures themselves, I am afraid I cannot see the signs of bottoming out suggested by for example the Irish Times new right wing guru Pat McArdle. The self-employed Income Tax figures are swollen by the way the Income Levy is assessed. It is charged on income before deducting pension contributions and capital allowances. It is therefore assessed on a figure perhaps much higher than the taxable income. This perhaps raises the question of Alternative Minimum Tax. The effectiveness of such a restriction on the use of tax schemes can be seen in a written response received by Ms. Burton on 3rd November last, ref. 38989/09.

The VAT returns also look very weak, particularly if there is between €100M- €125M in un-issued refunds lurking. There is no sign of either an increase in consumer spending, which would lead to increased VAT being paid or conversely in VAT repayments arising out of investment. The continued low level of customs duties is another sign of these weaknesses.

It is important to note that these figures are before the implementation of any further deflationary cuts by the Government and also and perhaps more importantly the withdrawal by the European Central Bank of their support mechanisms, which have kept the Irish banks’ afloat. I will try after next Wednesday’s slaughter of the innocents to provide an updated view of 2010 projections. Comments welcome, particularly from Dept. of Finance.

Posted in: Fiscal policy

Tagged with: exchequer returns