The recovery in tax revenues is set to increase pressure on the Government for tax and pay concessions in the final full year of its mandate.
New figures for 2014 show the exchequer collected €40.3 billion in tax in the year, €3.5 billion more than in 2013 and €1.24 billion ahead of target.
However, the budget deficit for 2014 is set to come in higher than forecast at 4 per cent of economic output as a result of large health spending overruns, increased Garda and prison expenditure and the new Irish Water scheme.
While this is higher than the 3.7 per cent of gross domestic product foreseen in the mid-October budget , Department of Finance officials say there is no reason to revise the Government’s forecast for a 2.7 per cent deficit in 2015.
With the election due by the spring of 2016, Government figures quietly acknowledge an escalating political requirement to deliver a meaningful recovery dividend to workers and taxpayers.
The 2014 figures come as Ministers prepare later this year to enter talks with public sector unions on the unwinding of emergency laws to cut public pay.
This is on top of the clamour to reduce headline income tax rates and overhaul of the universal social charge.
As Labour pushes to increase the statutory minimum wage of €8.65 per hour, Fine Gael will seek to insulate employers from the PRSI increases that would follow such a move by capping employers’ PRSI contributions at the current level.
Tax receipts
The deficit in 2014 was €8.2 billion, €3.3 billion lower than in 2013.
The figures point to a rise of almost 9 per cent in income tax receipts last year, reflecting employment growth, and an increase close to 8 per cent in value added tax receipts, which reflects the rise in consumer spending. Minister for Finance Michael Noonan said the figures showed the recovery was bedding down, saying the Government could release additional funding to the health and education services and reduce personal taxes. “The evidence of these figures is that the growth is continuing into 2015,” he said.
He suggested the Government could afford – as a result of increased growth – to contemplate taking another 90,000 low-paid workers out of the USC net altogether.
Ireland’s borrowing costs on international markets have declined again since the start of the year on the back of increased expectations that the European Central Bank will introduce a new scheme to buy up sovereign debt this month or later in 2015, an initiative known as quantitative easing (QE).
“The 10-year bond yield is currently just over 1.2 per cent but could easily be down at 1 per cent in the coming weeks, especially if the ECB delivers on QE expectations,” said economist Alan McQuaid of Merrion Stockbrokers.
“Ireland’s strategy in recent years has been to under-promise and over-deliver on the budgetary front, and this in our view is set to be the case again this year, helping to keep yields low as a result.”
Amid increasing doubt about the outlook for the euro zone economy, questions are being raised elsewhere in the financial community as to whether the Government’s growth projections are too ambitious.
Research released on Tuesday by the society of chartered financial analysts – CFA Society Ireland – suggests two-thirds of survey respondents believe the Irish economy will grow by between 2 per cent and 4 per cent in 2015.
This is is significantly lower than Department of Finance forecasts.
