The Government yesterday received encouraging fiscal news as exchequer returns showed a “strong and robust” flow of tax receipts in May and on-budget spending for all but one department.
The exchequer figures for the first five months of the year continue to show it takes in much more in taxes than anticipated when Finance Minister Michael Noonan delivered his budget late last year.
Tax receipts surged to €18.83bn, up €1.55bn, or 9%, in the year, as the exchequer took in €774m, or 4.3%, more in revenues than it anticipated for the first five months to the end of May.
With Vat receipts continuing to underperform, the Department of Finance also cautioned “a significant portion” of the bounty was due to one-off payments in corporation tax.
Corporation tax revenues for a second year are outperforming by a huge amount—by €484m, while Vat payments rose during the May Vat payments month and making up some ground after a worrying underperformance earlier this year.
Vat receipts were up 5.5% in the year to €6bn, but still lag by 2 percentage points the amount the exchequer had anticipated the taxes would provide.
The returns were “robust and strong”, said a Department of Finance spokesman, though the huge outperformance in corporate tax receipts were bolstered by over €200m in overpayments. Firms are likely to seek refunds later in the year.
On the flip side of Government finances, the expenditure figures showed net overall spending, at over €16bn, was €100m less than anticipated at this stage of the year.
The Department of Health was the only one of 16 spending departments to have overspent its budget, by €113m.
David McNamara, an economist at Davy Stockbrokers, said the Government was likely to beat its “too conservative” budget deficit target this year, even as income tax and Vat receipts were not as strong as could have been hoped.
Income taxes raised €7.44bn by the end of May, up 5.7% in the year, but exactly on target. Corporate taxes totalled almost €1.67bn — up by more than 9% from last year, and €484m, or a huge 41%, more than anticipated.
Following the surge in GDP growth of 7.8% last year, the Organisation for Cooperation and Development earlier this week projected the Irish economy would grow 5% this year and by 3.4% in 2017.
However, the growth in factory output slowed dramatically in May, according to the Investec Ireland survey of purchasing managers published on Wednesday, as sterling weighed on Irish exports.
That may be a herald of more difficult times ahead, particularly if the UK were to vote the leave the EU on June 23.
Alan McQuaid, chief economist at Merrion Capital, said more good news should be delivered later today when S&P Global Ratings — the new name for Standard & Poor’s — announces whether it has upgraded credit rating for Ireland.
“Ireland’s strategy in recent years has been to underpromise and overdeliver on the budgetary front, one which has been very successful in helping bring Irish government bond yields down to record-low levels,” said Mr McQuaid.
“As long as the minority government sticks to this strategy then market funding costs should remain low.”
© Irish Examiner Ltd. All rights reserved