5 Takeaways From the 3rd Quarter Exchequer Returns

On the second working day of every month, the Department of Finance publishes the exchequer returns – a summary of the income, expenditure and deficit position of the country in the year to date. At the end or each quarter – so April, July, October and January – they publish the figures with the fanfare of a press conference. Yesterday, they published returns for the first nine months of this year.

So, what do the figures tell us?

  1. Tax revenues are up on the back of tax hikes in last two budgets. Of all the major tax headings, corporation tax increased the most in percentage terms, from EUR 2.1bn to EUR 2.5bn, while income tax receipts increased the most in cash terms, from EUR 9.3 to EUR 10.4bn.With fewer people in work, weak economic growth, and negligible wage growth, this strong increase is likely attributable to the full-year effect of tax increases from the 2011 budget.

    The corporation tax rate was not increased, so the increase in receipts is down to stronger corporate profits (with the caveat that these receipts can be volatile, and the ‘surplus’ could have disappeared by year-end; it is currently running 251m or 11.4% ahead of what was forecast last December. Moreover, part of this increase relates to corporation tax carried over from 2011).

  2. Discretionary day-to-day spending is pretty much flat, rising 300m, despite budget cut-backs. In particular, the Departments of Health and Social Expenditure are spending more than was budgeted (accounting for a EUR 650m over-spend between the two). As they often do, this is off-set by a go-slow in discretionary capital spending, which is EUR 268m or 13.6% below the budgeted figure. This comes on top of the already sharply reduced capital spending budget for 2012.
  3. The deficit has almost halved, from EUR 20.7bn to EUR 11.1bn, almost entirely due to the sharp reduction – from EUR 10.7bn to EUR 1.8bn (if you include the EUR 450m in loans to the Insurance Compensation Fund to bailout Quinn Insurance) – in funds being channeled to recapitalizing the banks and to the postponement of the promissory note payment.
  4. Interest paid on the national debt jumped significantly, from EUR 2.4bn to EUR 4.1bn as the amount of debt outstanding increases as does the average rate of interest paid on it. Already, this amounts to half of all VAT collected in the economy.This trend is set to continue in the years to come as debt hits 120% of GDP and interest rates faced by Ireland in the markets – assuming of course that we do fully re-enter the sovereign bond market in late 2013, which I don’t – remains more elevated than pre-2008. At the moment, this effect is being suppressed by the fact that bailout funds do not carry a market interest rate.
  5. They’re banking on a strong finish to the year. Although tax receipts are runnning ahead of expectations, this trend has been weaking in recent months as we face into the crucial final quarter of the year, with big payment dates for corporation tax and for income tax (as the self-employed typically pay most of their tax in the final quarter).On the spending side, the go-slow in capital spending is to continue through the end of the year while a EUR 1.3bn swing in current spending is expected: Current spending for the first nine months of the year was running EUR 369m, or  1.2%, ahead of the same period the previous year, but by year end, current spending is expected to be EUR 928m, or 2.2% lower than 2011.

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