- Today’s Exchequer returns show that tax revenues in May were up 1.3 per cent, or €78 million on May last year, owing to an increase in corporation tax receipts of €1.2 billion;
- For now, corporation tax receipts are showing some resilience to the overall economic slowdown;
- Income tax fell 7.8 per cent year-on-year, or by €137 million, a figure that is less than expected;
- Reflecting significantly reduced consumption, and broadly in line with expectations, VAT and Excise receipts fell by 35 per cent and 36 per cent year-on-year respectively, or nearly €1 billion combined;
- Total net voted expenditure to end-May, at €26,098 million, was ahead of profile by €4,175 million, or 19 per cent;
- The rise in expenditure reflects increased departmental drawdown in response to the Covid-19 pandemic, particularly in the areas of health and social protection;
- An Exchequer deficit of over €6.1 billion was recorded to end-May 2020.
Fiscal Monitor May 2020
An Exchequer deficit of €6,143 million was recorded to end-May 2020. This compares to a deficit of €63 million in the same period last year. The €6,080 million year-on-year deterioration in the Exchequer balance is primarily driven by increases in voted current and capital expenditure. Tax receipts for the month of May amounted to €6,218 million; an increase of 1.3 per cent on May 2019. The aggregate outturn reflects a steep decline in excise and VAT receipts, but offset by strong corporation taxes and greater than expected income taxes.
Corporation tax receipts were €1,224 million higher than May last year. Information from the Revenue Commissioners is that these payments are based on increased profitability and not one-off factors; a significant part of the May corporate tax take is due to economic activity last year.
So far, income tax receipts have also proven more resilient to the broader economic shock, falling by 7.8 per cent year on year, or €137 million. Although the situation is evolving, for now, the progressivity of the income tax system has protected aggregate receipts to some degree. Workers in many of the worst affected sectors have suffered greatly during this crisis, but in normal times, thanks to our highly progressive income tax system, employees in these brackets pay less tax as a percentage of their salary than is the norm in most European countries.
Total net voted expenditure to end-May, at €26,098 million, was ahead of profile by €4,175 million, or 19 per cent. In year-on-year terms, this was up €5,207 million, or 24.9 per cent. The rise in expenditure reflects increased departmental drawdown in response to the Covid-19 pandemic, particularly in relation to the Department of Health and the Department of Employment Affairs and Social Protection.
Commenting on the figures, the Minister for Finance and Public Expenditure and Reform, Paschal Donohoe T.D. said:
Today’s figures show that the expected steep decline in consumption taxes has been offset by a rise in corporation taxes and relatively resilient income taxes. In relation to corporation tax, as I have said many times before, receipts of this order will not last forever. Even if receipts prove resilient during the current crisis, they will decline in the near future. As such, excess returns should be used to reduce the extraordinary amount of borrowing the State is taking on to fight this crisis.
Income taxes are proving to be more robust than estimated for now. June income tax receipts will be important in providing a clearer assessment.