The latest returns from the Department of Finance show that the economy is growing at an extraordinary pace. As a result, private sector forecasters now expect a surplus of Exchequer revenue over spending of £1 billion this year, or about 2 per cent of national output.
Department of Finance forecasters are officially predicting a surplus of £700 million at the end of the year, but unless spending increases sharply this now looks overly cautious.
The extremely buoyant tax revenues point to an economy growing even more rapidly that it did in 1997. The number of people at work now looks likely to increase by more than 50,000 this year, although the Department admits it is very difficult to separate the impact of wage increases from new jobs in assessing the income tax figures. Tax revenues are more buoyant than almost anyone thought possible at the beginning of this year. In the first half of the year the excess of revenues mainly tax over spending was £1.26 billion, compared with a surplus of £721 million in the first half of last year.
And it appears economic growth is broadly based. All the main areas, including income and corporation tax, excise duties and VAT are all up sharply. Stamp duty is positively soaring, with a massive 33.4 per cent increase over a very strong figure for last year, mainly reflecting the strength of the property market.
Strong economic growth also helps Exchequer finances by reducing Government spending. The cost of unemployment benefits is falling as the numbers on the live register decrease and PRSI receipts are about £100 million higher than expected. The Government is also expecting to receive about £20 million extra in EU receipts this year, compared with last year.
The Minister for Finance, Mr McCreevy, is insisting that all excess money will be used to boost the surplus and pay off the national debt, rather than to increase spending. But, reflecting the intense debate now getting under way about the Exchequer finances, Dr Dan McLaughlin, chief economist at Riada Stockbrokes says that there is a good case for putting some of the extra money into infrastucture spending.
"Debt reduction has little to recommend it if the debt burden is already low and the money can be spent sensibly," he argues.
However, Mr McCreevy has been warned by a host of international bodies including the EU Commission to run a tight Budget policy next year to try to combat inflation. The latest warning came yesterday from Bank of England monetary policy committee member, Mr Willem Buiter, who said the Irish economy was growing at too fast a pace and ultimately risked a crash in asset, or housing prices. And if confirmation of the strength of the economy were needed, it was provided yesterday in the latest release of credit data. The figures from the Central Bank showed that credit continued to surge, with growth of 24.2 per cent at the end of May compared with 24.3 per cent at the end of April.
But Mr Michael Tutty, second secretary at the Department of Finance, insisted the Government was taking action on house prices, following the Bacon report and had already given a commitment not to exceed spending targets, and to put all excess money into boosting the surplus. However, this commitment will be tested when Mr McCreevy delivers the 1999 Budget in December.
