Government spending has grown rapidly in the run up to the election, offsetting growth in tax revenues, according to the latest exchequer returns.
Total tax revenues grew annually by 10.8 per cent in the year to April, coming in €126 million ahead of the Government's forecast.
"Most of the overshoot reflects a €260 million overshoot on corporation tax, which is probably a timing issue," Davy Stockbroker chief economist Robbie Kelleher said yesterday.
But current spending growth accelerated to 21.3 per cent in the period, combining to produce a larger than expected exchequer deficit of €638 million for the period. This compared to a surplus of €497 million in the first four months of 2006. The predicted deficit for the period was €546 million.
Goodbody Stockbroker economist Dermot O'Leary said that Government expenditure had "accelerated quite markedly" and implied that this could be caused by the election.
"Government spending trends in the first four months of the year are, in fact, remarkably similar to the same stage of the most recent election year in 2002, with growth of 21.3 per cent being recorded in both years," Mr O'Leary said yesterday. He added that the housing market slowdown is likely to have an effect on stamp duty going forward, but it has yet to manifest itself. The momentum of growth in stamp duty receipts was likely to be downward. "It is unlikely that stamp duty receipts will defy gravity and continue to grow at current rates for the rest of the year," he said.
Stamp duty receipts outperformed expectations, rising to €1.176 billion or €40 million above target. Revenue growth remains positive for all tax categories at 10.8 per cent.
While slightly higher than the 10.2 per cent recorded for the year to March, this compares with 12.8 per cent growth in the year to February and 16 per cent growth last year and implies slowing momentum in the growth of tax receipts.
Five categories of tax, which together account for one-half of tax revenue, grew by less than expected. Added together, income taxes, capital acquisition taxes, capital gains tax, excise duties and customs duties fell €222 million short of target.
VAT receipts, which account for a further 30 per cent of tax revenues, were almost exactly on target at €4.9 billion.
Alan McQuaid of Bloxham Stockbrokers said that he was leaving his forecast of a full-year surplus of €1 billion unchanged.
"Overall strong economic growth should again bolster the coffers of the exchequer, with tax revenue likely to be well ahead of expectations," he said.
"Some commentators will undoubtedly seize on the fact the exchequer figures were in deficit at end-April compared to a surplus at the same time last year, but this has more to do with the expenditure side than a further deterioration in tax revenue.
"Indeed, given the maturing of €10 billion in SSIA funds in 2007 and the performance of the public finances in the past few years, the odds still suggest that the actual exchequer outcome at year-end will once more be a lot better than projected by the Government in its December Budget," said Mr McQuaid.
