Exchequer Returns for June released by the Department of Finance (DoF) confirm a very strong H1 2015 performance. Total tax revenues, at €20.6bn, were +11.7% y/y (+10.0% y/y after adjusting for SEPA effects in H1 2014) and 4.1% (€805m) ahead of the DoF’s profile.
The other revenue lines also surprised to the upside, producing total revenue for the period of €28.0bn, +8.1% y/y and 3.8% ahead of profile. Total expenditure was 1.1% below profile (it was also -1.1% y/y) at €31.2bn. The Exchequer deficit for H1 was €292m, much improved on the €4.9bn deficit booked in H1 2014 and profile (a deficit of €4.4bn).
The tax performance in H1 was particularly strong, with most headings outperforming. Income Tax revenues in the year to date are +6.1% y/y at €8.3bn and 0.7% ahead of profile. The underlying performance here is stronger than is implied by the magnitude of the outperformance, as weak DIRT receipts due to sharply reduced deposit rates (a function of the strengthened position of the banking sector here) are a drag on total income tax receipts. VAT receipts are +7.9% y/y at €6.0bn on the back of rising retail sales and are 0.6% ahead of profile. Excise Duties, at €2.8bn, are +2.9% y/y but 1.4% behind profile – a somewhat surprising outcome given the growth in car sales observed during the period. Corporation tax receipts, at €2.8bn (+57.5% y/y or +35.5% y/y after adjusting for SEPA), are 28.1% or €606m ahead of profile, accounting for roughly three-quarters of the cumulative tax revenue outperformance in H1. This reflects an improved trading performance and some one-off factors. The other tax headings were mainly a little better than profile and here we would note strong contributions from Stamps (€65m or 17.7% ahead of profile at €430m, helped by rising property prices and increased volumes of housing and financial transactions) and Customs (€38m or 28.6% ahead of profile at €152m, helped by positive developments in consumer spending).
Non-tax revenues with a general government impact were €70m or 3.6% ahead of profile at €2.0bn, with the main positive variances being Central Bank profits, Property Registration Authority Fees and accrued interest on the PTSB CoCo (recently redeemed ahead of schedule).
On the expenditure side, there are welcome signs of continued discipline, with total gross voted (i.e. discretionary) current and capital expenditure €109m (0.4%) and €39m (3.4%) lower than had been anticipated respectively, although we do note a disappointing €81m (0.8%) overrun in Social Protection current expenditure, which is a surprise given the positive developments in the labour market. Interest on the national debt cost €4.2bn in H1 2015, -2.6% y/y and 5.6% lower than profile due to the replacement of costly Troika borrowings with cheaper new issuance.
All in all, after excluding those transactions with no general government impact, the Exchequer outturn for the first six months of the year, at -€3.2bn, was €1.4bn or 0.75% of GDP ahead of profile. For 2015 as a whole the DoF is targeting a deficit of 2.3% of GDP (Investec: 2.2%), comfortably inside the EDP limit of 2.9%. While this target looks set to be comfortably exceeded, we are loath to mechanically extrapolate from the H1 outperformance given the lumpy nature of corporation tax receipts, SEPA effects and the potential for the expenditure spigots to be opened as we move towards the general election which we expect will be held in early 2016.
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