It now seems safe to say that Charlie McCreevy's successor will be stepping into some fairly comfortable Exchequer shoes when he (a she looks unlikely) becomes Minister for Finance in the early autumn.
The timing of the changeover will be significant, since it coincides almost exactly with the annual estimates campaign. This sees the Minister for Finance being lobbied by his various Cabinet colleagues for the spending increases that they believe their jobs and departments require.
Even though Department of Finance officials have to date done a fairly good job of playing down the sharp uptick in tax receipts that has dominated the public finances this year, the calls for additional spending are sure to be numerous, with the Cabinent reportedly already planning how to divide the spoils. They will be backed by a knowledge that the Exchequer will now have to borrow much less this year than it had expected.
Forecasts on this differ but the most recent, from the Central Bank, sees the State's Exchequer borrowing requirement coming in €1.3 billion below the target set last year. Most commentators now expect this to result in modest giveaways worth about €1 billion in December's budget. Where they come remains to be seen, but an indexation of the tax bands to inflation is sure to be under consideration.
The Economic and Social Research Institute advised in its most recent economic commentary, for example, that the Government could raise the PAYE tax bands by at least 5 per cent in the next budget. Some social welfare increases are also likely, as well as spending in the key areas of health and education.
The scope for such measures is almost entirely dictated by the strength of tax revenues, with the July Exchequer returns underlining a trend that has now been in place for several months.
Income taxes - one the biggest sources for the State's finances - are the main driver here, standing €600 million ahead of target at the end of July. Impressive as this sounds, it is due entirely to the bonanza bagged by the Revenue Commissioners in its most recent tax-evasion campaigns. Without this once-off windfall, income taxes, while still being about half a billion ahead of last year, would be sitting bang in line with the Department of Finance's targets.
Expectations have however been well beaten in other areas. Excise returns are the particular shining light in the latest numbers, with VAT also very robust. These two trends, when combined with an 18 per cent increase in stamp duties, are indicative of a recovery that has trickled well down to consumers. Total tax receipts at the end of July were running 11 per cent ahead of the same point of 2003, and 6.6 per cent ahead of expectations.
The one major tax source that remained anaemic at the end of July was corporation tax, which has disappointed all year. Timing factors are thought to be to blame here, just as they have contributed to a 200 per cent uplift in capital gains tax receipts.
Likewise, timing is seen as the main factor behind the slowness in capital spending so far this year, leaving ample space for a few chunky construction projects when the new minister takes on the job in September.
