The latest Exchequer figures show that the Government can deliver a neutral budget in two weeks and meet the 3% fiscal deficit target agreed with the Troika.
Total expenditure for the first nine months of the year reached €42.1bn, compared to €36.1bn. The €6bn deficit is a €1.2bn rise on the same period last year. Tax revenues came in at €28.8bn, up 7.4% compared with last year. This performance is €703m ahead of profile. Most categories performed well, including Vat and excise duty, which were both up 6.5% over the 12 months — reflecting more buoyant domestic demand. Income tax was up €956m for the year and is running €136m ahead of profile.
The Government is coming under increasing pressure to ease the tax burden on lower and middle-income earners in the budget. However, the European Commission, IMF, and the Irish Fiscal Advisory Council have all urged the Minister for Finance, Michael Noonan, to introduce €2bn in consolidation measures.
“What had looked like being a neutral budget, with many seeing their tax bills falling, now looks less certain,” said Peter Vale of Grant Thornton. “It’s possible that many of the promised tax reductions will be deferred until this time next year.
“A postponement of any tax cuts would impact adversely on the domestic economy next year.
“This may encourage Minister Noonan to introduce tax incentives aimed at encouraging investment in Irish businesses; this would neutralise the adverse impact of additional taxes draining money out of the economy. Ireland lags significantly behind the UK in terms of providing incentives to those seeking to invest in businesses, a point stressed in pre-Budget submissions.”
Overall, the Exchequer figures continue to surprise on the upside on the back of more robust growth and jobs created.
“Media attention has understandably focused on the exceptional performance of tax revenues this year, ” said Davy Stockbroker economist, Conall MacCoille in a research note.
“But a key reason that the Government deficit is currently €1.45bn ahead of target reflects conservative assumptions on non-tax revenues and debt interest. Central Bank surplus income is now €222m ahead of target, dividends from semi-state bodies €176m ahead and debt interest a huge €391m, or 7.3%, below expectations.
“Together, these non-tax revenues and debt interest account for almost €800m of the total €1.4bn better-than-expected performance of the overall deficit in 2014. It will be interesting to see if Budget 2015 takes a similarly cautious approach in its projections for non-tax revenues and debt interest to ensure that deficit targets are met,” he added.
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