Exchequer surplus saves €1.1bn
The department had forecast that it would need to borrow €2.8bn to fund its spending this year, but new figures show an income tax revenue surge and windfall payments from the crackdown in bogus offshore accounts meant it may only have to borrow €1.7bn.
Aside from the "hot money" that boosted the first half Exchequer returns, there has been consistent rises in income tax revenues, which are €600 million ahead of forecast.
The returns show that VAT receipts were running 9.4% ahead of last year at €5.2bn, while stamp duty came in at €899m, up from €750m in 2003, reflecting the strength of the housing market.
The improvement in the public finances and a lower borrowing requirement would allow Finance Minister Charlie McCreevy to cut taxes or index the tax bands to inflation.
But David Croughan, chief economist with employers body IBEC, said that when the one-off gains are stripped out from the half year figures, income tax receipts were up by under 8%, leaving no room for a spending splurge.
He said that the 10.2% fall in corporation tax receipts was clear evidence of the pressure many businesses were under, which had reduced profitability.
But Mr Croughan added: "The department estimated that borrowing at the end of the year would be €1.7bn, some €1.1bn lower than announced on budget day.
"This implied there was no room for a spending bonanza. Any leeway this did afford should go to indexation of income tax bands and tax credits, which the minister had not allowed in the previous two budgets and which had resulted in a drag on disposable income."
Jim Power, chief economist with Friends First, said based on the current figures, the Exchequer could move into a surplus next year when a deficit had been forecast, though that depended on what happened in the December budget.
"From a political perspective, the buoyancy of tax revenue, which should continue as the economy recovers, and the ongoing commitment to maintaining strict control over spending, will put the Minister for Finance in a very strong financial position going into December's budget and the two further budgets likely before the next scheduled election," he added.
