The Exchequer finances are now in such a good position that the continuing overruns of revenue are almost embarrassing for the official forecasters. Almost every three months, the Department of Finance is having to revise up its estimate of tax revenue and the overall surplus at the end of the year.
Contrary to expectations within the Department, tax revenue continues to grow strongly. Mr Jim O'Leary, chief economist at Davy Stockbrokers, points out that tax revenues have not slowed down in the fourth quarter in recent years. If this year follows this trend, it means that, despite another upward revision, the Government's latest forecast underestimates the surplus and tax growth. Mr O'Leary says tax revenue would exceed the budget target by £1.2 billion (€1.5 billion), or £1.3 billion when AIB's DIRT payment is taken into account, rather than the £800 million in the Government's latest forecast.
Dr Dan McLaughlin, chief economist at ABN Amro, also argues that the surplus will be far higher than predictions. He expects a surplus of £2.3 billion.
Both argue for substantial tax cuts. Mr O'Leary says the large spending overruns in both the current and capital sides are proof that governments cannot be trusted with a surplus. He says it is better to give the money back in tax cuts before the idea that it is "free money" becomes ingrained. Dr McLaughlin says the fact that tax receipts exceed spending by the amount they do is proof that tax is too high and should be cut.
The ESRI and others have, of course, argued that pumping more money into the economy through tax cuts will exacerbate the inflationary situation and that such tax cuts should be held off until the economy is cooling. Last night, speaking in the Dail, Mr McCreevy said the figures were proof that the economy was undergoing sustained growth and a structural change. He added that inflation was a pressing problem, but insisted that "we have to be careful not to withdraw from our electoral and partnership commitments on tax and wages due to a misreading of the economic signals".
Hinting that he was likely to ignore the cautionary stance of the ESRI, he also repeated that the Budget would be framed in the context of addressing issues such as inflation, transport, childcare, tax policy, health and education services.
There seems to be some merit in this. As he came into office, the Minister argued strongly in favour of fiscal or spending restraint, a position he has maintained for many years. He came up with a flexible, and generous, spending limit of a 4 per cent annual average in day-to-day spending. This has been breached and day-to-day spending increases are running at 10.5 per cent, a level he would have condemned himself when in Opposition.
