VAT receipts roar back to pre-pandemic level as economy reopens

VAT receipts surged back to pre-pandemic levels last month as the economy reopened after months of lockdown.

The latest exchequer returns from the Department of Finance show the sales tax – an indicator of consumer spending – generated €2.3 billion in May.

This was 12.5 per cent, or €256 million, more than the department had anticipated and the strongest sign yet of an impending rebound in economic activity.

The department said VAT receipts were €800 million up on May last year and on a par with the pre-pandemic May 2019 figure.

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"Today's exchequer returns show that although we continue to borrow heavily to support incomes and businesses through the pandemic, the economy has started to recover," Minister for Finance Paschal Donohoe said.

“VAT receipts, in particular, show that both consumers and business are feeling more confident about the future,” he said.

After November, May is the most significant month for tax receipts in Ireland, particularly for VAT.

Tax revenue

The latest exchequer numbers show cumulative tax revenues of €23 billion were generated for the first five months of the year. This was €800 million, or 3.5 per cent, ahead of profile.

The strong performance was driven by continuing strength in income tax receipts, which generated just over €10 billion for the period, as well as a significant recovery in VAT receipts.

Corporation tax receipts – under pressure from incoming changes to the global tax environment – generated almost €2.4 billion in May, which was down 7.6 per cent or €196 million on the same month last year.

The Government’s headline budget deficit – on a rolling 12-month basis – was €12.2 billion in May, reflecting ongoing expenditure on pandemic-related supports.

Government spending for the period was just under €33 billion, €1.45 billion or 4.6 per cent ahead on the same period in 2020, mainly due to the cost of the pandemic unemployment payment (PUP) and the employee wage subsidy scheme. However, it was 4 per cent or €1.38 billion below profile.

Resources

“This highlights the scale of the resources that Government continues to provide to support our health and other frontline services to respond to the crisis and to support our citizens and businesses whose livelihoods have been severely impacted by the pandemic,” Minister for Public Expenditure and Reform Michael McGrath said.

The Government is planning to phase out the PUP over three stages from September. Exchequer debt-servicing costs for the five months to the end of May stood at €3 billion, down on last year by 11.6 per cent or €401 million on last year.

Peter Vale, tax partner at Grant Thornton Ireland, described the figures as very positive.

“Income tax receipts remain exceptionally strong. With the economy reopening and more people returning to work, income tax looks set to comfortably beat both last year and target receipts for 2021,” he said.

“Indeed, if the recent trend continues, there could be a circa €1 billion surplus in income tax receipts alone by year end,” he said.

Mr Vale said: “VAT figures for May reflect spending in March and April, when much retail remained closed.”

“Despite this, VAT receipts were in line with the May 2019 equivalent figure, ie pre-Covid. This is a remarkable achievement and shows how consumers have adjusted to new ways of spending,” he said. “With non-essential retail having now reopened, VAT receipts are likely to rise sharply in the second half of the year,” he said.