A summer spending splurge by Irish consumers helped to drive the State’s tax receipts last month almost 12.4 per cent higher than expected, and one-third ahead of the same month last year, according to July’s exchequer receipts released on Thursday afternoon.
The star performer came in the form of VAT receipts, which the Department of Finance described as "very strong" and in line with retail sales data that suggested consumers went on a spree as soon as Covid-19 restrictions were eased.
The State’s VAT returns for July of almost €2.5 billion were 16.7 per cent ahead of profile and 53 per cent ahead of the same month last year. Crucially, July’s VAT numbers were also 7.5 per cent higher than the same month in 2019, the last pre-pandemic annual comparison month. The department said July’s VAT numbers were among the highest ever recorded.
"The VAT figures are quite startling, with spending now firmly ahead of pre-Covid levels," said Peter Vale, tax partner at Grant Thornton Ireland.
“It’s clear that the strong VAT figures earlier in the summer did not reflect a temporary post-Covid spending splurge. Based on the latest figures, consumers are continuing to spend.”
Sustained
Mr Vale predicted that the fact that many people will holiday domestically this year means the strong spending should be sustained for the remainder of the summer.
Overall, the State’s tax receipts for the year to the end of July of almost €35.2 billion are running about 3.4 per cent ahead of profile and are about 13 per cent ahead of 2020. Cumulative spending of more than €47.1 billion is 3.7 per cent ahead of profile.
Income taxes in July were 5.4 per cent ahead of profile, while stamp duty receipts to the end of July were more than 10 per cent ahead of profile.
“Income tax receipts for July 2021 are over 20 per cent ahead of the equivalent month pre-Covid [July 2019], which is a remarkable statistic,” said Mr Vale.
In total, the State has racked up a deficit (an excess of spending over tax receipts) of more than €5.7 billion so far this year, an improvement of more than €1.7 billion on the same period last year. On a 12-month rolling basis, the State’s deficit now stands at more than €10.6 billion.
Mr Vale, however, predicted that VAT and income tax receipts, combined with corporation tax, will see the State’s finances in better position than forecast by year end.
“With some businesses now starting to pay down previously deferred tax liabilities, it’s likely that there will a large surplus over forecast at year end for both income tax and VAT. When robust corporation tax receipts are added in, by year end the exchequer could be looking at a surplus of €3 billion over forecast.”
