Tax take booms but spending concerns persist

Coalition ministers yesterday hailed a bounty of taxes, saying that the economic recovery has been secured and reiterated plans for an expansionary pre-budget budget.

Tax take booms but spending concerns persist

The exchequer had €1.74bn more in revenues in the coffers over the first nine months this year than it had anticipated a year ago, figures published yesterday showed.

That will underpin plans for spending increases and tax cuts by Finance Minister Michael Noonan in his budget later this month.

However, leading economist Conall Mac Coille has raised concerns about the Coalition’s plans to increase spending this year, and has questioned the carry-over effects of so-called supplementary budgets, after significant over-runs were posted, particularly for the health budget.

Reflecting a broad-based recovery, all sources of taxes are running ahead or close to target.

The take from corporation taxes — from both multinationals and smaller businesses — which were €1.2bn ahead of profile, reflect the swing back to profitability for many firms after the tough years of the crisis.

Returns from Vat — running at €222m above target at the end of September — are no less significant because they provide further evidence that consumer spending is returning, despite the huge debt problems still faced by many households.

Income taxes delivered €118m more than the exchequer expected this time last year.

Such is the pace of the economic recovery that the Government expects to have €2bn in additional funds at hand by the end of the year.

But Mr Noonan reiterated his commitment not “to break” the ceiling of €1.5bn in tax cuts and spending increases when he delivers his budget for 2016 later this month.

Mr Noonan restated his prediction that the budget deficit would fall to around 2.2% of GDP this year and to 1.5% of GDP in 2016. Gross debt levels would fall to under 100% of GDP.

And the costs of servicing the debt accumulated during the banking crisis is below expectations.

But both Mr Noonan and Expenditure Minister Brendan Howlin outlined yesterday plans for so-called supplementary budgets, after spending overruns.

Mr Howlin said most departments would meet their 2015 spending budgets, but supplementary budgets are now projected, particularly after a large budget over-run in health.

That has led to a red flag being raised by Mr Mac Coille. The chief economist at Davy Stockbrokers said that plans for a health supplementary budget “means the total stimulus to the Irish economy next year from the policy changes in budget 2016 is now likely to exceed €2bn, or approximately 1% of nominal GDP — larger than we had previously thought”.

He said that a supplementary budget is still a spending increase and represents a change of policy.

“In aggregate, spending discipline is being maintained but not in the Departments of Health and Social Protection, which are €335m and €143m over budget respectively, offset by underspending in other departments and in capital expenditure,” said Mr Mac Coille.

A Department of Finance spokesman said the supplementary budgets would be accounted for this year — in the 2015 budget sums.

Tax revenues have surged by almost €2.75bn from a year earlier, to €31.62bn at the end of September.

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