Ireland’s Fiscal Tightrope

The Irish Exchequer Statement for the five months ending 31 May 2009 show that the Government has spent €25.6 billion and had an income, from tax and other sources of €15 billion.  This leaves an Exchequer deficit of €10.5 billion, financed by borrowings of €8.9 billion and other deposits of €1.6 billion.  Interest paid on Government debt amounts to €1.58 billion.

The table below summarises the profile of tax receipts and compares these to Profile of Exchequer Tax Revenue Receipts 2009.  The State is €37.2 million ahead of projections in the aftermath of the April 2009 Budget.

Tax Receipts for 5 months to 31 MAY 2009

€ Million	Projected	Actual	+ / -
Customs	92,000	88,280	-3,720
Excise	1,655,000	1,753,832	98,832
Capital Gains	202,000	189,226	-12,774
Capital Acquisitions Tax	116,000	105,890	-10,110
Stamps	315,000	294,370	-20,630
Income tax	4,589,000	4,634,263	45,263
Corporation Tax	1,012,000	1,138,985	126,985
VAT	5,511,000	5,305,559	-205,441
Training and Employment Levy		831
Unallocated	0	18,046	18,046
TOTAL	€13,492,000	€13,529,282	37,282

Spending at the Department of Agriculture & Food is €248 million more than this time last year and should be considered in the context of the output of agriculture and fisheries is a mere €3.88 billion, having dropped from €4 billion in 2005.

Health expenditure is €200 million ahead of last year and welfare spending is , predictably, €457 million ahead of this time last year, following steep increases in the Live Register.

One item of expenditure that is noteworthy is the €6.33 million paid to the Leaders of the political parties, pruned by 10% but this is partially offset by the overhead to run the Leinster House enterprise - €367,000 more expensive than last year.

The cost of the local and European elections amount to €8.5 million.

Cumulative Fiscal Progress – 2009

 

Month	Total Receipts €	Total Expenditure €	Exchequer Deficit €	Borrowing €
Dec 2008 (Year)	43,021,778	55,735,598	-12,713,820	30,310,525
Jan	4,281,998	5,029,215	-747,217	6,674,212
Feb	6,577,074	8,661,834	-2,084,760	6,398,172
Mar	9,433,404	13,154,149	-3,720,745	10,234,357
Apr	11,645,341	18,961,729	-7,316,388	6,579,469
May	15,090,952	25,678,595	-10,587,643	8,987,279

Republic of Ireland trippers cause tax loss when they shop in the North

A report has been produced for the Irish Goverment on the tax loss arising from residents of the Irish Republic travelling to shop iacross the border in Northern Ireland.

The main causes of what are fairly significant price differentials between purchases in Northern Ireland and the Republic, are:

• Operating costs
• Profit taking in the Republic
• Taxes - VAT is lower in Northern Ireland
• £ / € FX rate

The £/ € relationship depreciated around 30% between January and December 2008. £0.94 buys a €1 on March 20th 2009. While changes in the standard VAT rates have widened some price differentials, their impact remains small compared to the size of the change in the FX rate.

The report estimates the potential loss in Irish Exchequer revenues due to cross-border shopping arising from reduced VAT and excise yields in 2008 at between €58m and €90m (the higher estimate represents under 0.5% of the total VAT and excise revenue in 2008). In addition to the VAT and excise loss, there is a possible corporation tax revenue loss that is tentatively estimated to be in the range of €15m to €24m. However, all estimates for corporation tax revenue are indicative of the potential loss.

If the £/€ exchange rate remains at close to current levels, the estimated VAT and excise revenue loss is put at between €72m and €112m, and a possible corporation tax revenue loss in the range of €20m to €31m.

The Irish taxpayer is, of course, acutally paying for some stretches of the road network in Northern Ireland, as a peace dividend, so naturally Irish citizens would wish to use the roads they paid for! I have to buy a new kitchen sink tomorrow. The price in Dublin is €380 and the price in Newry is €240. An exotic tap that goes with it costs €500 in Dublin and €300 in Newry. As taxes and levies are being piled on in the Republic, what option do shoppers have only to seek out the best value.

Retail sales in the Republic dropped by 20% in 2008 and have reverted to 2004 levels. The drop was aggravated by the 42% decline in the sales of new vehicles, according to the Central Statistics Office. Tax revenues in the Republic January 2009 were down by 19%, including a drop in corporation tax from €196 million to €121 million and stamp taxes (mainly on property transactions) dropped from €80 million to €50 million.