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Corporation tax revenues surge could create budget surplus

Written by Robert McHugh, on 5th Dec 2018. Posted in Financial

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Goodbody Stockbrokers has today claimed another corporation tax windfall in November has put Ireland on track to return to a budget surplus in 2018. 
 
According to the November Exchequer returns published yesterday, there was deficit (on a general government basis) of €525m in the first eleven months of the year. However, tax revenues once again came in ahead of expectations - by €631m (7%) in November alone – suggesting that the €300m deficit predicted in Budget 2019 in October will be exceeded.
 
Goodbody Stockbrokers say a return to surplus would indeed be welcome, but it is heavily depended on one tax heading – corporation tax. In the first eleven months of 2018, corporation tax receipts amounted to €9.5bn, and will exceed €10bn for the first time this year. As a comparison, in 2011 corporation tax receipts amounted to just €3.5bn and at the peak of the last economic cycle it amounted to €6.7bn. Ireland has become more successful with multinationals over this period, but Goodbody say this source of revenue is volatile by nature and is also subject to risks due to changes in the international tax environment.
 
Capital expenditure has rebounded strongly in 2018 (+35% yoy), but it is still the case that most of the increased spending has been in current spending, which, of course, is difficult to reduce in the event of a downturn in tax revenues. Voted current spending grew by 7% year on year (yoy) in the first eleven months, 1% ahead of expectations due to an overrun in health.
 
According to Goodbody Stockbrokers, "The Fiscal Advisory Council has been particularly critical of Budget 2019 in its latest assessment. While there has been significant progress since the crisis, this has stalled over recent years. To be prudent, windfalls should be put towards either capital spending, into the “Rainy Day Fund” or used to pay down debt."

Source: www.businessworld.ie 

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