Tax revenues remained well above-target last month, indicating that the Government will have substantial scope for tax relief and higher spending on Budget day. Una McCaffrey and Mark Brennock report
The Exchequer was in surplus by €255 million at the end of July, figures published yesterday by the Department of Finance show. This compares to a deficit of €241 million at the same stage last year, when tax receipts were below expectations and the economic recovery was less secure.
The latest Exchequer returns point to significant buoyancy, with tax revenues running 11 per cent ahead of the same point last year, and almost 7 per cent ahead of the Government's expectations.
While much of the overshoot is due to the €677 million windfall collected by the Revenue Commissioners from its investigations into offshore accounts, the figures point to robust returns in other areas of tax too.
Excise duties - collected on alcohol, tobacco and fuel - were up 12 per cent on last year compared to the Department of Finance's forecast of 10.2 per cent.
Davy Stockbrokers economist, Mr Rossa White, pointed out that this level of excise receipts was not easily achieved in light of "headwinds" created by the smoking ban and rising oil prices. Mr White said strength in VAT receipts was indicative more of a strong housing market than of robust consumer spending.
As has been the pattern so far this year, the improving tax picture failed to be matched by an upsurge in Government spending.
While the day-to-day spending patterns of Government departments more or less caught up with Department of Finance forecasts in July, capital spending remained 13 per cent below expectations for the end of the month.
Mr Aebhric McGibney, senior economist with employers' group IBEC, highlighted this weakness in capital spending as "the real worry" in yesterday's numbers. He said it seemed to be clear that spending would be behind target for the whole year, even allowing for an upsurge in large-scale projects in the second half.
Economists now agree that the incoming Minister for Finance will have scope in the next Budget to "give away" about €1 billion, thus taking pressure off most taxpayers' bills in 2005 and allowing for some increases in social welfare and other spending headings. This package is likely to see the tax bands being fully indexed to inflation for the first time in three years.
Fine Gael's Enterprise, Trade and Employment spokesman, Mr Phil Hogan, claimed last night that the sharp increase in tax revenues suggested that every household would pay an extra €2,800 in tax this year. Yet, he said, there had been little or no improvement in public services.
"Each household has been landed with an extra tax bill of €1,600 so far this year - €2,800 for the full year - because Charlie McCreevy refused to link tax credits and tax bands to inflation in Budget 2004," he said.
"Non-indexation of tax bands and stealth taxes have pushed the total tax take up by €2,150 million."