Cowen set for €1.6bn Budget bonus in tax windfall

NEW Finance Minister Brian Cowen will have an unexpected €1.6 billion bonanza at his disposal when he delivers his first Budget later this year.

The Exchequer returns until the end of September show a stunning increase in tax revenues for the first nine months of the year, which should slash this year’s deficit from the forecast €2.8bn to €1.2bn.

This is coupled with an extraordinary drop of €1bn in projected Government spending so far this year. However, finance officials said yesterday that the new five-year envelope system for capital funding would mean the shortfall will be made up between now and December and spending would be on target.

Half of the €1.6bn hike in tax revenue is explained by a once-off windfall which resulted from the Revenue Commissioners special investigations of the offshore activities of Irish banks.

But with a buoyant property market and growing consumer confidence, receipts from income tax were markedly up, as were receipts from stamp duty (up €300m); Capital Gains Tax (up €300m) and VAT (up €400m).

The Government sent out strong signals after the Coalition’s poor performance in the June elections that December’s Budget would be noticeably more ‘giveaway’ than those of former Finance Minister Charlie McCreevy.

But in his only comment on yesterday’s figures, Mr Cowen sounded a note of caution strongly reminiscent of his predecessor.

“The Exchequer returns confirm the improvement in the public finances revealed at mid-year,” he said.

“Tax revenue is ahead and spending is on target. This is a result of prudent fiscal management which I intend to maintain.”

While Mr Cowen has remained characteristically guarded about his intended approach, it is widely expected he may allot greater resources to priority areas such as health, education and some reversal of cutbacks in Community Employment Schemes. There are also wide expectations of tax band adjustments, taking those on the average industrial wage out of the highest tax bracket, and removing more low earners from the tax net.

Yesterday’s figures continued a positive trend that has seen revenues running far ahead of target this year. The only under-performer has been corporation tax, down €400m compared to this time last year.

But even that could be transformed by year’s end, said senior department official Philip Hamill, who said strong performances in the corporate sector may yield extra tax receipts in the last quarter.

Another finance official played down predictions of a second Celtic Tiger era.

Reacting to the returns, Fine Gael deputy leader Richard Bruton said the Government will “hoover” up an extra €2,800 per household because of its refusal to change tax bands and “very high rates of stamp duty and VAT”.

Labour’s finance spokeswoman Joan Burton echoed his criticism, saying “hidden tax rises” had given the Government a bonanza of €4.6m per day. She said Mr Cowen “must deliver for families in the Budget”.