The Government is expected to take in over €44bn in tax revenue this year. The surplus amounts to €2bn, or 5% more than was forecast in last October’s Budget.
Rises in pay, falling unemployment, rising domestic demand, and lower taxes have placed the Irish economy in “a sweet spot”, Goodbody Stockbrokers said yesterday in its second quarter health check on the State’s finances; and it only sees things improving.
Earlier this month, exchequer returns showed the public finances making a first quarterly surplus since before the financial crisis, with tax revenues of almost €10.5bn being generated in the first three months of the year; beating the same period last year by over 13% and topping Budget 2015 estimates by €545m or 5.5%. In last autumn’s Budget, the Government forecast a tax take of €42.3bn for 2015.
Goodbody’s chief economist Dermot O’Leary said yesterday that, while it is still early in the year, he is confident the Government will comfortably beat its budget deficit targets for this year, adding that Ireland’s general government debt is set to fall further in the coming years.
“The Government expected tax revenues to grow by just 3.1% in Budget 2015, but it is now clear this will be beaten by a significant margin,” said Mr O’Leary.
“We expect tax revenues will grow by 8% in 2015, leading to a €2bn overshoot relative to Government expectations. This is the primary reason for our improved deficit forecast of 1.9% of GDP in 2015. The deficit is forecast to fall to 0.9% of GDP in 2016.”
The Goodbody report said Ireland’s export performance will continue to improve and that the burgeoning recovery in the domestic economy, and consumer spending, should gain further traction over the remainder of 2015 and into next year.
Furthermore, the company suggests the construction sector will start making a sustained contribution to economic growth, stating the sector is “at the start of a multi-year growth period”.
Mr O’Leary said that, in the next Budget, the Government should focus on capital investment, income tax reductions, and a decrease in Vat for housing and the self-employed, adding that too much loosening of the purse strings, on the back of growth momentum, could be counter-productive.
“This has the potential to undo some of the progress that has been made on returning competitiveness and putting the public finances on a stable footing,” said Mr O’Leary. “Irish policymakers have done a good job of managing the bust. It is equally important to manage the boom in a way that secures growth into the medium-term.”
“The cyclical recovery in the Irish economy is now well-entrenched, with a clear line of vision of what the growth drivers will be over the coming years.”
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