Finance Minister Paschal Donohoe could tap hundreds of millions from surging tax receipts to fund giveaway measures in his budget next week — but much will still depend on the scale of potential health spending overruns for the rest of the year.
The resources at hand for Mr Donohoe to employ next Tuesday comes after the tax revenues climbed to over €40.7bn in the first nine months of the year, up by more than €3.2bn from the same period in 2018.
The exchequer returns were the last set of figures before the finance minister presents his 2020 budget.
All the big four tax receipts, including income, Vat, and excise, posted large increases and performed well, but corporate tax receipts were again the star performer.
At €15.7bn, income tax revenues met Department of Finance targets for the firsts nine months; Vat receipts were also on target at €12.3bn; excise duties at over €4.3bn exceeded expectations; while corporation taxes brought in over €5.8bn, or €558m more than was anticipated.
That could still pose some sort political restraint to spending measures because the Government has long been warned by the Economic and Social Research Institute and the Irish Fiscal Advisory Council against spending bounties from corporate taxes which cannot be relied on in the future.
Significantly, Mr Donohoe said that in shaping the budget, he will follow advisory council forecasts for a crash-out Brexit at the end of the month that will mean GDP will expand at only 0.7% next year and by 3.3% in 2021.
Nonetheless, Conall Mac Coille, chief economist at Davy, said that the above-target returns mean the finance minister has more room to manoeuvre in budget measures next Tuesday but that the amount may shrink somewhat should health spending overrun again later in the year. “Tax revenues are up across the board which suggests the economy is still firing,” he said.
On the spending side, the Department of Finance said net-voted expenditure, at €38.5bn, in the first nine months was up 6.9% from a year earlier.
Austin Hughes, chief economist at KBC Bank, said the tax receipts showed the economy was “in a healthy place” but that Mr Donohoe would have to frame his budget in a way that would not frighten the consumer and deter household spending.
“The great unknown is how sustainable the corporate tax base is,” said Peter Vale, tax partner at Grant Thornton, adding that he expects “little in the way of tax cuts” next week.
Some of the risks facing the budget sums are evident as stock markets slumped amid renewed fears of a new flareup in the global trade wars, which could hit Irish exports such as whiskey to the US.
It came as the World Trade Organisation ruled in favour of the US over subsidies by the EU to Airbus, which may lead to president Donald Trump imposing sanctions on a wide range of goods from Europe.
Business groups also spoke out against the Brexit proposals of Boris Johnson for the border.
“With markets having made tentative gains ahead of the US-China trade talks, we are seeing European stocks hit hard in anticipation of a widening rift between the US and EU, leading to a similar tit-for-tat trade war,” said Joshua Mahony at online broker IG.