The Border Brexodus - shoppers to go North amid fall of pound
Department of Finance admits weak sterling will hit spending here
Published 05/07/2016 | 02:30
The Department of Finance has warned that Vat receipts could drop in the wake of the Brexit vote, claiming plunging sterling may lure shoppers to the North instead.
The admission Brexit will hit our tax take came as it was confirmed the takings for the first half of the year were €742m better than expected.
The department acknowledged the referendum result would ultimately have an impact on the Exchequer but added it was too early to say by how much.
"There will be an impact. What's hard to tell is how much and that's something we'll be looking at in the context of the forecast for the Budget," said John Palmer, Principal Officer at the Department of Finance.
"We would expect, later on in the year, and again it depends on the strength of sterling, that we will probably see some linkage across to Northern Ireland in terms of Vat, and people [will] go and shop there."
Sterling has weakened since the Brexit vote last month, making Northern Ireland more attractive as a destination for shoppers to stock up on groceries or other items.
At the time of the vote, €1 bought about 76 pence in sterling. Now it's buying around 83 pence.
Shoppers flocked to Northern Ireland in 2009 when the euro neared parity with sterling at one stage. That outflow of business created havoc for the retail trade here, and became a major political issue. Vat receipts so far this year are already €231m below expectations at €6.2bn.
International research group Kantar Worldpanel also warned that grocery shoppers here might drift to Northern Ireland due to the weakening sterling.
It comes as both the Dublin and Belfast governments have tried to play down the potential impact of Britain's plan to cut company tax to 15pc in efforts to stave off recession in the wake of Brexit.
Finance Minister Michael Noonan said the British Chancellor had two years ago signalled a phased cut to 17pc - and the move to 15pc was not much below that. The move by Chancellor George Osborne is an attempt to keep investment in Britain after the shock referendum decision on June 23 for the country to leave the EU.
Speaking after North-South government talks at Dublin Castle, Taoiseach Enda Kenny conceded the move would have implications for both parts of Ireland. But Mr Kenny said other factors influenced investors' decisions and both the North and the Republic had been successful in attracting business investment.
"Obviously, there are implications here both for Ireland and Northern Ireland," Mr Kenny said. But he added that the gap between the Irish and British rates could be influential for business decisions also.
But Northern Ireland First Minister Arlene Foster, of the DUP, said the move could in fact help the North - even if it continued with cuts down to the 12.5pc planned for Northern Ireland in spring 2018.
This is to match the rate which applies in the Republic, and which is the source of much hostility within the EU.
"I do not fear the decision that the chancellor has made. It just adds to the tools we have today," said Ms Foster, who campaigned for the 'Leave' side.
She said Northern Ireland was able to compete for overseas investment for many reasons, including a talented workforce. The key now was to ensure the North got the best result in negotiations between the EU and the UK.
Ms Foster said a fully fledged move for a 12.5pc company tax rate all across the United Kingdom could save Belfast the expense of taking control of company tax.
Mr Noonan said if England, Scotland and Wales reduced their rates, there would not be much of an advantage to Northern Ireland, but he added that Brexit generally was a threat.
Meanwhile, the latest Exchequer returns showed income tax is on target at €8.77bn, while Vat is €231m below expectations so far this year at €6.22bn.
The surge in corporation tax is continuing, with receipts up 18.9pc, or €505m, above profile for the first six months of 2016.
Excise receipts so far this year are over 14pc above target, due in part to a front-loading in activity in advance of the plain tobacco packaging, with companies paying the excise on the products as they are allowed to sell the branded products for a year after the plain packaging comes into force.