Shortfall in USC as tax revenues come under pressure

The Department of Finance has confirmed it is investigating an unexpected shortfall in income tax receipts this year amid concern the trend, should it continue, may derail the Government's budgetary plans.

Exchequer returns last week indicated the tax take for the first four months of the year was 2.4 per cent, or €344 million, behind target. The underperformance was blamed on weaker-than-expected universal social charge (USC) receipts.

A spokesman said the department was examining a divergence between USC and PAYE receipts since the start of the year, and officials had held a meeting with Revenue on Friday to review the numbers.

He said the department was not unduly worried by the shortfall given it only represented a fraction of the State’s €19 billion annual income tax haul. However, he said it was worthy of attention.

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Department officials are understood to be at a loss to explain why USC receipts are at odds with the ongoing growth in employment. Some analysts suggest the limp numbers may relate to the top 20 per cent of earners, who pay their USC in tranches rather than on an automated monthly basis.

The department’s spokesman said that USC was a “newish tax”, had been changed several times since its inception, and was less predictable than PAYE.

Softer numbers

The softer numbers, however, also coincided with changes to the tax brought in during the last budget, with the marginal rate being reduced to 49 per cent for those earning up to €70,000 a year.

Last week’s Exchequer returns also show corporation tax underperformed the department’s target, coming in 27 per cent below expectations at €587 million. While this was put down to timing, with April not being an important month for corporation tax, officials remain concerned that Ireland’s corporation tax receipts remain heavily dependent on a relatively small number of big companies.

The Revenue’s annual report for 2016 shows nearly 40 per cent of Ireland’s corporation tax take comes from just 10 firms. The Government has been repeatedly criticised for the using the recent upsurge in corporation tax revenue as part of current spending plans given the reliance on so few firms.

Receipts

The other below-par performance was excise duty, which was 6.3 per cent below target at €1.74 billion, but this was linked to the front-loading of receipts on tobacco products ahead of plain-packaging rules.

Despite the pressure on tax receipts, the department has not amended its growth targets for the year.

The below-par performances in income tax, corporation tax and excise duty so far this year have been partly offset by stronger VAT returns, which reflect a pick-up in retail.