Rising VAT Revenues Ease Fears on Irish Economy

A big improvement in the amount of VAT the Irish government collected last month has helped assuage some fears about the outlook for the economy.

Ireland collected 6.1% more tax in January than a year ago, driven by a surge in value-added tax receipts submitted for November and December, the finance ministry said on Thursday, Reuters reported.

Ireland’s economy has been the best performing in the European Union for the past three years, swelling the tax take in the process even as the government gradually unwinds some of the tax increases introduced during the financial crisis.

The finance ministry has forecast that tax revenues will grow by 5.2% for 2017 and that Ireland’s budget will fall to 0.4% of gross domestic product as it moves towards its first balanced budget in a decade.

Income tax returns and VAT receipts accounted for over 80% of all revenue collected in January, with VAT up 10.2%, or €214 million ($230 million), year-on-year and income tax 0.5% ahead of where it stood a year ago.

The exchequer recorded a €1.5 billion surplus in January, representing a €270 million improvement on the year, which the finance ministry said was primarily due to the increased tax take.

Irish household debt stood at an aggregate €145.3 billion, which in terms of population amounts to almost €31,100 per citizen. Debt here stood at almost 145% of disposable income in the third quarter of 2016, higher than debt levels in the UK, Finland, Portugal and Spain, and compared with the eurozone average of just over 90%.

Slovenia, Croatia, the Czech Republic, and Italy have among the lowest levels of household debt in Europe.

However, house price increases helped boost household net worth to €661 billion, representing an average of €141,427 for each citizen, according to the central bank figures.

Alan McQuaid, chief economist at Merrion Capital, said that the still-elevated levels of household debt probably explain why consumer spending had been fragile, despite the economy expanding at a strong rate.

Holding the fourth highest household debt in Europe increases the risks facing the economy from Brexit and the potential sharp cuts in US corporation taxes, he said.

“Our sense is that sentiment readings may remain choppy in coming months reflecting an Irish consumer who is facing into a quite uncertain 2017,” said Austin Hughes, chief economist at KBC Bank.