Finance Minister, Michael Noonan has vowed the country will avoid repeating past mistakes and won’t return to a ‘boom and bust’ cycle on the back of its current strong economic recovery.
Following yesterday’s publication of a strong set of 2015 Exchequer Returns — which showed a near wiping out of the budget deficit and total tax revenues more than €3bn ahead of expectations — Minister Noonan said 2015’s strong performance was “further evidence” of the economic recovery the country started seeing last year.
“Overall, an Exchequer deficit of €62m was recorded...This is a massive improvement from a deficit of €8.1bn for 2014 which was buoyed by a return from some of our investments in the banking sector.
"When once-off factors are accounted for, we have an underlying Exchequer deficit in 2015 of around €3.4bn compared to an underlying deficit of about €8.6bn in 2014,” he said.
While corporation tax accounts for the bulk of last year’s revenue increase, Mr Noonan said it was “encouraging” to see strong performances from income tax and VAT.
“This is further evidence of the economic recovery we have witnessed in 2015,” he said, before adding the expected end-2015 deficit will be close to 1.5% of GDP.
Minister Noonan speaking re end of 2015 Exchequer returns: "Tax revenue was €3.3 billion ahead of expectation." pic.twitter.com/DvFgleeSzZ— Fine Gael (@FineGael) January 5, 2016
Minister Noonan added: “The next step in our recovery is to put in place our medium-term strategy which will spread the recovery to all sectors of the economy and all regions throughout the country. We are determined to avoid the boom and bust cycles of the past.”
Employers’ representative body, Ibec welcomed yesterday’s figures, but also was quick to suggest a significant increase in nationwide infrastructure investment is urgently needed on the back of the progress.
“The public finances have clearly benefitted from the economic surge in 2015. It is a significant achievement to be approaching balanced budgets again.
"However, Government has been slow to react to the strong economic recovery, which the business community foresaw a number of years ago,” commented Ibec’s director of policy and chief economist, Fergal O’Brien, who added under-investment in areas such as education, transport and housing risk derailing the economy.
“The Government needs to fundamentally re-think its investment plans for the coming years.
"Without investment in world class education facilities, improved transport links and greater supply of affordable housing, economic growth will be unnecessarily constrained,” Mr O’Brien added.
He said that while the Government has already allocated some of the unexpected additional tax revenue for day-to-day expenditure purposes, “it continues to neglect the country’s capital investment needs.”
“The next Government will need to continue prudent management of the public finances, but it is vital that future economic prosperity is supported by a much more ambitious investment plan,” he said.
Chambers Ireland agreed, saying the priority now must be on reducing the country’s debt burden and using the growing tax revenue “to invest in the capital infrastructure necessary to support future economic growth.”
Commentators didn’t put too much emphasis on the strong role played by corporation tax — which accounted for €2.3bn of the €3.3bn additional revenue.
The Revenue Commissioners have already suggested that all but €300m of the outperformance in 2015 will probably be repeated in 2016, Davy Stockbrokers’ David McNamara noted.
“A note of caution is if we become over reliant on rising corporate tax receipts.
"Corporate tax receipts from multinationals vary depending on the global economic climate,” said Peter Vale, tax partner at Grant Thornton.
However, he added: “Overall, 2015 was an excellent year for the Exchequer.
"All the indications are that we will see an even better performance in 2016 as the domestic economy grows further and Ireland continues to remain attractive to international investment.
“A combination of high income tax rates and a strong labour market means we are likely to see strong income tax receipts in 2016.
"With people spending again, VAT receipts should also continue to outperform.
"Similarly, capital tax receipts are moving upwards reflecting increased prices and more activity generally.”
© Irish Examiner Ltd. All rights reserved