A strong surge in tax revenues in the first part of this year looks set to leave the Minister for Finance, Mr McCreevy, with greater scope to cut tax rates by more than previously agreed and to pay off some of the national debt ahead of time.
The figures for first seven months show a £1.1 billion increase in the tax take from the same time last year. The Exchequer took in over £8.4 billion, an increase of 15.5 per cent. These trends are set to continue into 1998.
The extremely buoyant receipts are likely to fuel demands for generous tax cuts and possibly higher spending.
However, speaking to The Irish Times, Mr McCreevy insisted that all the surplus means is that debt-servicing costs will be reduced. "The fact we have had a good bonanza had a minimal bearing on the future and on future years".
The latest figures show that this year's targets will be greatly exceeded, and while money cannot be carried forward, the trends indicate the scope the Minister will have in his Budget. The end of July Exchequer return, or balance of incomings over outgoings, showed a surplus of £929 million, more than £200 million higher than the amount at the end of June. This time last year, the Exchequer was running a deficit of £36 million.
Most economists are now revising their forecasts to show that Mr McCreevy could easily finance a zero Exchequer Borrowing Requirement (EBR) and the State could even be in surplus at the end of this year for the first time in recent history. However, Mr Jim O'Leary, chief economist at Davy Stockbrokers, pointed out that there is scope for some massaging of the figures to allow for extra borrowing. In that case, it would be possible for the State's finances to remain in deficit.
Nevertheless, it is clear that the figures provide room for Mr McCreevy to meet the tax cut promises in Partnership 2000. If he adheres to his tight spending commitments, there could also be room to continue paying off the national debt.
Dr Dan McLaughlin, chief economist at Riada Stockbrokers, pointed out that there is nearly £1.4 billion of debt to be redeemed next year. One option would be to start paying that back early, he said. This would leave the State in a far stronger position when the economy begins to slow.
According to Mr Dermot O'Brien, chief economist at NCB Stockbrokers, running deficits when the country is doing well is taking a chance. "There is an unspoken assumption that we will continue to do well, but it would be all too easy to go back into serious deficit again," he warned. Mr McCreevy said yesterday that it would not be financially prudent to speculate on the basis of only seven months' figures. However, he insisted that he will keep to the tax cutting pledges in Partnership 2000 and the Programme for Government.
But the Minister is likely to come under pressure from other Departments. The annual Estimates round is already underway, and he will need hard arguments to persuade individual Ministers that there is not enough money for their own priorities. There may also be difficulties persuading unions that no further money for tax cuts will be forthcoming.
Detailed analysis of the Exchequer figures cannot be done until a breakdown is available. To date the Department has only released a basic summary. However, a Department of Finance spokesman said some of the extra tax revenue was due to a larger payment of VAT in July than in June. Most tax categories generally saw some growth, he added.
The surplus was also boosted by large amounts of EU money, which allowed some Departments to claim less from the Exchequer.