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Ireland: Late tax surge puts state finances ahead of target

04 January 2013   (0 Comments)
Posted by: SAIT Technical
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By Donal O'Donovan and Michael Brennan (Irish Independent)

Executive summary

An increase in VAT, stamp duty and business taxes has put the Irish government well ahead of the EU/IMF targets for 2012. The gap between state spending and income is estimated to have dropped to less than 8pc.The deficit for 2012 is now likely to come in at 7.9pc or even 7.8pc. That is down from an overspend of 29pc at its worst point in 2010.

Full article

A SURGE in VAT, stamp duty and taxes paid by businesses has put government finances well ahead of EU/IMF targets for 2012.

The unexpected increase in government income means the gap between what the State spent and what it took in last year is reckoned to have dropped to less than 8pc – final figures will be tallied in April.

It means the state finances are in better shape even than expected when the Budget was announced on December 5, according to Finance Minister Michael Noonan.

"Barring war or pestilence we should be in a position to achieve our targets for 2013 fairly comfortably," he said at a press conference to announce the figures yesterday.

He had been expecting a €210m shortfall in last year's tax take after disappointing figures for November.

A late surge in payments, including bigger-than-predicted corporation tax payments by two large companies in December helped turn things around, however, and mean the tax take ended the year €271m above the level predicted.

The deficit for 2012 is now likely to come in at 7.9pc or even 7.8pc, he said. That is down from an overspend of 29pc at its worst point in 2010.

The latest figures beat the Government's previous estimates of an 8.2pc deficit and are well below the 8.6pc target set under the EU/IMF bailout deal.

It means Ireland may no longer be the worst country in the euro area in terms of overspending – Spain's deficit is forecast to hit 8pc this year.

The deficit fell to €14.9bn from €24.9bn in 2011, mainly because there were no major new bills associated with rescuing the banks last year.

Banks

One-off income including €450m paid by mobile phone companies in an auction of 4G spectrum, and over €1bn paid by banks under the banking guarantee helped boost the overall picture.

That had been expected before yesterday's announcement.

The big change is that tax revenue bounced back in December after a disappointing November.

VAT, stamp duty and tax payments by businesses were all up last year.

But with unemployment stubbornly high, income tax came in below the Government's target.

There are signs of stress among the self-employed too, seen in some late payments of tax in December that were originally expected the previous month.

The latest figures, however, don't include VAT from the Christmas shopping season, which experts say will give a second boost to the tax take in January.

Spending fell by 1.7pc over the same period – spending in Health and Social Welfare were both above target, but the overall picture was eased by deeper cuts elsewhere.

There was a broad welcome among economists for the latest figures last night.

"In all, this is a good outturn for 2012, with the Government's fiscal performance surprising on the upside," NCB's Phillip O'Sullivan said.

The reaction from opposition politicians was more mixed.

Fianna Fail's Michael McGrath welcomed the fact that the figures in the December Exchequer returns were broadly in line with expectations, but warned that 2013 could be a more difficult year for the domestic economy given the PRSI hikes, child benefit cuts and property tax in the Budget.

"It is difficult to see how there could be positive momentum in the domestic economy," he said.

In addition, the latest figures show the government spent €14.9bn more last year that it took in. The difference had to be met with extra borrowing from the troika.

Under the EU/IMF bailout, Ireland still needs to slash that deficit to 3pc of revenues by 2015, which means at least two more years of budget cuts and tax increases.




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