In­come tax re­ceipts re­silient to Covid

The Irish Times - - Business News -

One of the most eye-catch­ing el­e­ments of the Gov­ern­ment’s half-year ex­che­quer num­bers was not the mas­sive jump in spend­ing, that had been well flagged, or the over-per­for­mance in cor­po­ra­tion tax, which is now a peren­nial fea­ture, but the rel­a­tively be­nign im­pact of coro­n­avirus on in­come tax. For the six-month pe­riod, in­come tax re­ceipts to­talled ¤10.5 bil­lion, up marginally on the same pe­riod last year. In the con­text of a na­tion­wide shut­down with con­sumer-fac­ing sec­tors such as re­tail and hos­pi­tal­ity ef­fec­tively shut and an un­em­ploy­ment rate that spiked to 28 per cent in April, that’s some go­ing.

The Depart­ment of Fi­nance re­vised its tax tar­gets after the virus hit and the ac­tual out-turn for in­come tax is

10 per cent, or ¤941 mil­lion, up on the re­vised tar­get, which tells you that even the depart­ment has been sur­prised by the re­silience of in­come tax, even if the June fig­ure was ¤368 mil­lion or 21 per cent down on last year.

What does this tell us? Two things. First, the 410,000 work­ers on the Gov­ern­ment’s Tem­po­rary Wage Sub­sidy Scheme are still pay­ing tax, which ef­fec­tively means the Gov­ern­ment is sup­port­ing taxes via spend­ing out­lays. Sec­ond, and more sig­nif­i­cant, is the fact that the coro­n­avirus hit has fallen dis­pro­por­tion­ately on low-paid work­ers in the re­tail, food­ser­vice/ac­com­mo­da­tion and con­struc­tion sec­tors, who pay less tax.

Some three-quar­ters of in­come tax is paid by about 20-25 per cent of work­ers, those on the high­est in­comes. These peo­ple have not (in gen­eral) been laid off and were work­ing from home dur­ing the lock­down. Hence the hit to in­come tax has been more be­nign that it could have been. This will aid the Gov­ern­ment in its long climb out of the deficit.

With con­sumer ac­tiv­ity so heav­ily cur­tailed, the big hit to the Gov­ern­ment’s tax base should come from VAT. Re­ceipts from the sales tax for the six months showed “a steep de­te­ri­o­ra­tion”, the depart­ment said, down ¤1.5 bil­lion or 20.5 per cent on last year. Next month’s num­bers will give us a bet­ter pic­ture of the fall-off in con­sumer spend­ing as a re­sult of the lock­down and the re­sult­ing slide in VAT re­ceipts on the Gov­ern­ment’s ledger.

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