Tax returns have been behind target for much of the year and it is welcome that the trend has been more positive in the last couple of months. Total tax revenue is now just 0.5 per cent behind target and there is a good prospect that it will be on or ahead of expectations for the full year.
However, caution is still needed, particularly because of the uncertainties caused by Brexit. Much of the buoyancy in June was due to strong corporate tax returns, an area showing some volatility and reliant on a small number of big companies. Income tax, while improving, remains below target for the first half of the year, which is surprising given the buoyancy in the jobs market. VAT is strong, showing that consumer confidence remains intact.
The Department of Finance will now produce updated economic and budget forecasts in its summer economic statement. This document will clarify the additional cash which it believes will be available in the budget for tax and spending measures – the so-called fiscal space. On current indications the amount will be limited due to the need to stay within EU budget rules.
Taoiseach Leo Varadkar has said the Government may look at finding additional savings or revenues to make more cash available to meet its core objectives. This is a welcome statement. However, the emergence of customary hints that we are all going to benefit from significant tax reductions on budget day, while still meeting key spending priorities, is less promising. Whatever happens, the scope for tax cuts will be limited and although there is a case for reform to address key inefficiencies in the system, the overall tax burden will not change significantly. Meanwhile, spending priorities must be addressed in key areas of economic and social infrastructure.
It is here that the Government can make a difference and where it must focus its efforts, not only in planning but also in getting projects underway and completed. In this regard, the news that there is to be further delay in the roll-out of broadband to some rural areas is not promising.