Analysis: Brexit overshadows the positives from exchequer figures

The UK’s decision to exit the EU is almost certain to result in a recession in Ireland’s largest trading partner with adverse implications for the €1.2 billion in trade that flows across the Irish Sea on a weekly basis .

The signs - in terms of deferred investment and consumption - were already manifest before last month’s vote.

The blowback is unlikely to emerge in the exchequer data for some months, however, and is unlikely to halt Ireland’s budget deficit falling to a nine-year low of below 1 per cent of GDP in 2016.

That said, a downgrading of the State’s headline growth projections for 2017 seems almost inevitable and this seems to point to less fiscal space that previously envisaged.

So far Minister for Finance Michael Noonan hasn't flinched, other than to acknowledge that there will be some sort of drag on Irish gross domestic product (GDP) as a result of the current pre-Brexit dynamic.

He also dismissed chancellor George Osborne’s plan to lower the UK’s corporation tax to 15 per cent, suggesting it was less “dramatic” than it sounded.

Given Mr Osborne may not even have the economics portfolio under the next leader and his 15 per cent pledge doesn’t exactly represent a quantum leap on the 17 per cent already signalled, perhaps Mr Noonan is right not to panic just yet.

PWC managing partner, Feargal O'Rourke took a more alarmist stance, stating Britain had effectively "parked its tanks on the lawn" of Ireland and other European states by announcing its intention to reduce its rate to below 15 per cent.

The latest exchequer numbers were largely a rerun of latest month’s numbers with one noticable difference.

While strong out-turns in corporation tax and excise again generated about €750 million more in tax than expected, the Government’s cushion has begun to taper rather than expand as it did in the months leading up to last year’s budget. Between May and June, the Government’s cushion narrowed from 4.3 per cent to 3.4 per cent.

The Department reckons about €300 million of the current €500 million overhang in corporation tax may be the result of overpayments by companies which will be clawed back later in the year.

It’s unclear why the Government doesn’t have a better hold on the current corporate tax windfall as it stems from only a handful of companies in the tech sector, which purchased intellectual property assets last year from rival subsidaries.

The department also believes that around €200 million of the €400 million windfall in excise represents frontloading by cigarette firms ahead of the plain packaging legislation coming into force.

The upshot will be a more modest end-year outperformance, perhaps in the region of €500 million but importantly not inconsistent with Mr Noonan’s planned budgetary adjustment of €1 billion.

The most volatile piece of the exchequer jigsaw remains VAT, which was again below half-year expectations. Even on a monthly basis, receipts were €110 million or 36 per cent below profile.

A department spokesman said VAT receipts might be damaged in the coming months on the back of a major depreciation in sterling as this would likely result in an appreciable upswing in cross-Border shopping to the detriment of the exhequer here.