On the back of Exchequer Returns showing tax revenues over €1 billion ahead of target, you'd expect the Finance Minister to affirm the soundness of the public finances. Yet a closer reading of the figures suggests all is not well with the economy, as opposed to the finances. I couldn't figure out how income tax is so flat once we omit the windfall gain due to the special investigations of the Revenue Commissioners. Why at a time of a growth of 90,000 in the workforce is there not some growth here. Are all new entrants low paid service workers whose earnings fail to reach the minimum threshold?
There are other special, possibly one-off circumstances that can explain some buoyancy in relation to VAT and stamp duty, namely the soaring cost of fuel and the still over-heating property market. It's significant that corporation tax is coming in at around €280 million below the target which reflects the current squeeze on output and exports.
So one could say that the figures look good because of continued consumer spending and the surging property market. The economy keeps growing and there are more people in jobs which, in turn, reflects population growth. But is it viable and sustainable growth that will lead to an increase in people's sense of well being or does it merely represent a growth in GNP?
Marc Coleman ends his good, concise analysis in the Irish Times today with the observation that if current trends continue to the end of the year "the amount of tax paid by house purchasers will amount to more than half the full-year take in corporation tax and VAT will finally overtake income tax as the largest source of government revenue". I find this astounding and it surely has profound implications for the fiscal basis of state activities in relation to the economy and beyond. I haven't heard anyone else make much of this but, both for prudential and moral reasons, it just doesn't seem right.
Why does it matter where the source comes from?
Posted by: simon | October 06, 2005 at 12:21 AM