The Minister for Finance is likely to have to revise his forecast for the Exchequer surplus upwards again when he stands up to deliver the Budget next month.
The surplus for the first nine months of the year is running at £2.9 billion (€3.68 billion) compared with a Government forecast for an end-year surplus of £1.9 billion, according to the latest figures from the Department of Finance.
Even with heavy spending in the last few months of the year, the surplus is unlikely to fall back that far, according to Dr Dan McLaughlin, chief economist at ABN Amro. Day-to-day and capital spending by Government departments generally pick up in the last few months of the year.
Dr McLaughlin added that the surplus could be as high as £2.5 billion at the end of the year with little evidence that the economy was slowing down. Tax revenues have continued to grow strongly and are rising at 15.8 per cent, underlining the argument that the Government is taking in too much revenue and should move to reduce it, according to Dr McLaughlin.
Income-tax growth at this level points to continuing strong employment growth. It indicates that wage increases are probably running in excess of the terms negotiated in the Programme for Prosperity and Fairness.
The figures give significant room for manoeuvre to Mr McCreevy on Budget day. He will have one more set of figures available when he stands up on December 6th but, barring a dramatic turnaround, there will be few limitations on the Exchequer. Should he choose to, he will have well over £1 billion to give away on Budget day.
The overall thrust of the Budget is still under discussion and the Minister, the Tanaiste and the Taoiseach have much to debate at a series of meetings before the final speech takes shape.
Mr McCreevy recently indicated he would proceed with individualisation. That would mean widening the bands. As a result, he would probably need to increase personal allowances. The Tanaiste has expressed preference for cutting the standard and top rates of tax. If Mr McCreevy chose to widen the bands and cut the rates it would cost close to £2 billion.
Overall spending is running 19 per cent higher than last year, with day-to-day spending at just more than 9 per cent ahead of last year.
Tax is running ahead of forecasts on almost all fronts. VAT is up by just less than 20 per cent, pointing to continuing buoyant spending by consumers. The exception is corporation tax, which is still undershooting its target, rising at around 11.2 per cent. Excise duties are almost 11 per cent ahead. Strong house prices continue to feed into the latest figures, with stamp duty up 27 per cent.
Capital taxes are up an extraordinary 83 per cent, with the profits on shares and properties increasing dramatically.
