Tax receipts fells in January following the imposition of Level 5 restrictions late last year, the latest exchequer returns show. Total tax revenue for the month was down nearly 9 per cent (€520 million) at €5.4 billion.
"The January receipts are the first returns to reflect Level 5 restrictions in late 2020 and, accordingly, saw a year-on-year decline across virtually all tax heads," the Department of Finance said.
VAT receipts were the worst hit, reflecting the impact of restrictions on consumption over the traditionally busy Christmas period. Revenue from the sales tax came in at €2.3 billion for the month, down nearly 13 per cent on the same month last year. January is normally the strongest VAT month of the year as it incorporates the Christmas shopping period.
There were also declines in corporation tax, excise duty and stamp duty.
The exception was income tax, the Government’s largest tax channel, which again performed better than expected. It generated €2.3 billion in January, up nearly 4 per cent on the same month last year, continuing what the department described as a “ trend of resilience”.
Revenue forecast
The department said it was suspending its normal monthly tax profiles, which are used to benchmark the performance of each tax head, until it updates its economic forecasts in April. This is because the 2021 tax revenue forecast contained in the budget was no longer valid, it said, as it was predicated on a hard Brexit and did not take account of a Covid-19 vaccination programme.
“Clearly things have changed since October. In the circumstances that now exist, October’s tax revenue forecast is of limited use,” the department said.
The collection of VAT returns in January enabled the exchequer record a surplus of €1.2 billion last month. But the department said that, on a 12-month rolling basis, the public finances were in deficit to the tune of €12.7 billion in January.
This was driven by a combination of declining tax receipts and increased spending on wage and business supports. Total spending for the month amounted to €6.26 billion, 11.1 per cent higher than the same period in 2020.
“Today’s figures show the impact public health restrictions are having on consumer spending,” Minister for Finance Paschal Donohoe said.
“January is usually the largest month for VAT receipts, but, as expected, due to restrictions in November and late-December, this month’s figures are significantly down on last year.” he said, while noting that tax receipts will again suffer over the coming months as the effects of the current restrictions are felt.
However, he said, there is light at the end of the tunnel with case numbers falling a vaccine being rolled out.
“For those companies that rely on face-to-face interaction, such as the hospitality sector, the Government will continue to provide a wide range of supports for individuals and businesses,” he said.
Minister for Public Expenditure and Reform Michael McGrath said the impact of the pandemic is continuing to play out on the spending side of the Government’s accounts.
“By far the largest contributor to this increase is in the area of social protection which is nearly €1 billion greater than for the same period last year,” he said. This is mainly due to the Pandemic Unemployment Payment (PUP) which cost €509 million in January alone and the Employment Wage Subsidy Scheme which cost €365 million, he said.
Nearly 480,000 people are in receipt of the PUP in January with expenditure of more than €140 million a week while 46,000 employers are registered for the wage subsidy.
“While the figures today are 8.8 per cent behind January 2020, the very strong income tax figures offer some hope that the economy can rebound sharply once widespread vaccination is in place,” said Peter Vale, tax partner at Grant Thornton Ireland.
