The Government should have ample capacity to ease the burden on taxpayers in the next Budget, as new Exchequer figures show a strong rebound in the public finances over the first half of the year, writes Una McCaffrey.
Exchequer returns released yesterday show that the Exchequer took in €1 billion more in taxes over the first six months of the year than it had expected.
At the end of June, the public finances were in surplus by €130 million, compared to a deficit of €344 million at this stage of 2003.
The result, which was driven in large part by €580 million drawn in by the Revenue Commissioners under special tax evasion investigations, has injected new health into the public finances. It leaves tax revenues almost 7 per cent ahead of the Department of Finance's target at the half-way point of the year.
Rather than being forced to borrow the €2.8 billion he thought he would need to fund spending this year, the Minister for Finance, Mr McCreevy, now expects a borrowing requirement, or deficit, of just €1.7 billion.
He acknowledged yesterday that the public finances are "somewhat ahead of target".
The head of Mr McCreevy's finance directorate, Mr Philip Hamell, said the scaled-down deficit will be achieved as taxes for the year as a whole come in €1.1 billion ahead of target. Spending plans will remain as they were last December, he added. Other commentators were yesterday predicting an even larger bonanza, however, with economists at AIB and Friends First predicting that the Exchequer would be €1.5 billion better off at the end of the year.
Mr Jim Power, chief economist with Friends First, said this would put Mr McCreevy in a very strong financial position going into the next Budget.
Most analysts now expect the Minister to lighten the tax burden in December by, at the very least, shifting the tax bands to take account of inflation. This was not done for 2003 or 2004, with the result that many taxpayers have lost out.
Actual tax cuts at this stage look unlikely, although the Minister may have some room to move on rates as he comes closer to the next Dáil election in 2007.
The latest Exchequer numbers come a day after the CSO estimated that the economy grew faster at the start of 2004 than at any time since 2001. News also emerged yesterday of unemployment dropping to an 18-month low in June, and of redundancies falling 31.6 per cent below levels recorded this time last year.
The US ambassador to Ireland, Mr James C. Kenny, has meanwhile been heralding a "new wave" of US investment over the coming year.
The link between such buoyancy and the State's tax take was not entirely in evidence yesterday, however, with much of the boost in tax revenues over the first half of the year taken from two one-off factors.
As well as the Revenue Commissioners' investigations, this included an unexpected €259 million windfall on capital gains tax.
Continued strength in the housing market ensured that stamp duties were almost 17 per cent ahead of target, with capital acquisitions tax beating expectations by 18 per cent. Corporation tax revenues were 6 per cent below target, however, suggesting that business profits were not as high in the first half as might have been anticipated in a stronger economy.
Mr Dermot Mulligan, principal officer in the Department of Finance's budget and economic division, suggested that there may be a lag between corporation tax receipts and actual corporate profitability.
The Taoiseach, Mr Ahern, has welcomed the figures. He also rejected claims by the Economic & Social Research Institute (ESRI) that there was no need for a second benchmarking study of public sector pay.