Friday 28 October 2016

Income tax take is down, corporate tax is up, but 'don't panic, it will all balance out in the end'

Published 05/10/2016 | 02:30

Michael Noonan. Photo: Tom Burke
Michael Noonan. Photo: Tom Burke

Budgets are full of anomalies that don't make sense to ordinary workers.

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One that has emerged with the latest round of exchequer returns is that a key reason why income taxes are €114m behind target for this year is that not enough people have received pay rises.

The irony is obvious at a time when gardaí and other public services are beating down the door of the Department of Public Expenditure looking for pay restoration.

But that is how one of the big irregularities in the latest round of exchequer returns was explained yesterday.

So far this year, Revenue has collected almost €13bn in income tax, just less than 1pc behind what was forecast.

Asked to explain how the level of tax being collected from workers is behind target, when the number of people back at work is ahead of target, officials in the department pointed to the wage question.

"Wage inflation isn't very strong," said principal officer John Palmer, who argued that getting more people into work isn't worth the same in tax terms as getting a pay rise for those already at work.

Combined with VAT figures that are €278m behind target, you would be forgiven for thinking that the 'real economy' is not as robust as we are being told.

But, again, the experts say there is no reason to panic.

Mr Palmer's logic on VAT is that inflation hasn't gone up as much as they expected when the figures were being compiled last year.

So, in summary, the message emerging from the offices of Michael Noonan and Paschal Donohoe a week before Budget 2017 is for everybody to stay calm and remain prudent.

"The taxes collected and expenditure on vital public services show that the Government's prudent planning of our resources is working well," Mr Noonan said.

Mr Donohoe added: "Prudent management of our finances and a sensible approach to spending are key to ensuring that we can deliver a fair society supported by a strong economy. Next week's Budget will build on that."

Shortfalls There's no panic because the headline figures show that the country is actually €484m better off than expected because of something else that is arguably ironic.

After weeks of debate over whether large companies like Apple pay enough tax, it is corporation tax figures that are covering over the gaps in income tax and VAT.

Corporation taxes are running €644m ahead of target, more than making up for shortfalls elsewhere.

Budgeting is not an exact science, but the equation facing Mr Noonan and Mr Donohoe in the days ahead will have to be very carefully calculated.

Irish Independent

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