The Government's financial position is expected to exceed expectations by about €4 billion at the end of the year, according to figures released yesterday by the Department of Finance, writes Marc Coleman, Economics Editor.
The better than expected out- turn will have a positive impact on the amount of money that Minister for Finance Brian Cowen will have to borrow next year.
The pre-Budget white paper published yesterday - which takes account of the latest tax projections - indicates the Minister will have to borrow €1.1 billion before any expenditure announced on Budget day is taken into account.
Mr Cowen is expected to announce a spending package of around €2 billion on Wednesday, which will include a substantial childcare package. He will also announce increases in pensions and social welfare.
Some of the spending to be announced next week will flow back to the Exchequer in the form of tax. As a result, the borrowing requirement for next year is expected to come in at significantly less than €3 billion.
The Exchequer returns data for the first 11 months of this year show that the Government has received €3.6 billion more in taxes than last year. This will be significantly more than the €1.9 billion increase forecast at the time of the last budget.
But according to the Government's forecasts for revenue growth, also published yesterday, revenue growth is expected to moderate next year.
The Department of Finance has been particularly conservative when it comes to forecasting growth in Capital Gains Tax receipts and also stamp duties. These are the two taxes most dependent on the property market and the conservative estimates are seen as an indication that the Department expects to see a cooling in the market next year.
The European Central Bank increased euro-zone interest rates this week for the first time in five years, which is expected to have a knock on effect on the property market.
Total tax revenues grew annually by 10.7 per cent in the first 11 months of the year. Particularly strong growth occurred in customs duties, capital taxes and stamp duties. Over the same period customs duties have risen by 33.2 per cent, capital taxes have risen by 27 per cent and stamp duties have risen by 28 per cent.
VAT receipts also grew strongly, by 13.6 per cent. Compared to overall revenue, income tax and corporation tax have continued to perform poorly, however, growing by 6.7 per cent and 3.6 per cent respectively.
Government spending is also significantly lower than expected. Current spending has risen by 7.6 per cent so far this year, compared with an expected increase of 11 per cent.
Under-spending in the area of capital spending has been a significant factor in this outcome. However, Exchequer figures for the final month of December which will be published in January are expected to show that Government spending jumped considerably in this month, closing a significant part of this gap with last year's projections.
In the week before the Budget, the Exchequer's net position now stands in surplus to the tune of €2,959 million in the year so far. This is compared with a surplus of €1,890 million expected for this period as projected in last year's budgetary plans.
Fine Gael spokesman on finance Richard Bruton TD yesterday called on the Government to use the tax overshoot to fund the indexation of tax bands.
"To put this tax bonanza in perspective, if the Minister set aside even half of the unexpected bonus in tax receipts collected in 2005 in order to fund concessions in 2006, he could provide full indexation of all credits and bands and cut the lower 20 per cent tax rate by one point to 19 per cent," said Mr Bruton.
Labour Party spokeswoman on finance Joan Burton said that the Government was failing to meet its commitments on infrastructural investment
"There was a suspiciously round figure of €100 million underspend on transport infrastructure, which suggests that the Government really doesn't know what the correct figure is or it doesn't want to tell us. Failure to deliver on key infrastructure is costing the economy and society dear."