Another positive set of exchequer returns augurs well for the Government as it prepares to issue a “spring statement” next month in which it will plot the future course of economic policy. Still, the good news brings with it the prospect of an ever-greater clamour to relax its stringent fiscal stance as the election looms.
As recovery deepens, the latest data shows that a strong month for tax collection in January was followed by another strong month in February. This is not really a surprise, for previous figures point to a rise in retail and car sales and a continued increase in number of people working.
Just as the exchequer receives a double-blow from advancing unemployment – via reduced income tax returns and increased welfare expenditure – the opposite is true as employment recovers.
Thus income tax receipts in January-February were €183 million stronger than in 2014 and spending in the Department of Social Protection declined by €238 million.
Such trends were anticipated in the October budget but targets – on the taxation side at least – are being exceeded by a wide margin. This helped drive the €900 million-plus revenue boost in the first two months. Just as the Government’s strategy throughout the worst of the crisis was to under-promise and over-deliver when it came to spending cutbacks and tax hikes, the same would appear to be true as the economy expands again.
Remember, however, that the coalition is still running a deficit and that success is not assured in the effort to account off-balance sheet for the substantial liabilities of Irish Water.
Yet the economic climate has still changed. In the hard years of recession, debate centred on the extent and focus of the titanic retrenchment campaign. After €29 billion in cuts and tax increases and with the general election increasingly visible on the horizon, the concentration for months to come will be on the division of recovery spoils.
This will be exceedingly tricky in the political sense, for the spoils are by no means as great as the preceding (and all-too abundant) pain. The task is made more difficult still by the necessity to maintain market confidence in the effort to assert order in the public finances, which essentially means that the degree fiscal space under discussion will remain very narrow.
For all the warnings about not repeating past errors, this is still a Government whose ministers are wedded to further income tax concessions, increased child benefit, talks to unwind public pay cuts and other potential gains.
True, the continued improvement in the public finances provides certain room for manoeuvre. But the list of demands will only lengthen if current trends continue. Such problems are of an order different to the horrors overcome in the crash but they are problems nonetheless.
