Sharp growth in tax revenue points to economic upturn

Tax revenues have accelerated strongly, and Government borrowing for the year now looks set to be well below the budget target…

Tax revenues have accelerated strongly, and Government borrowing for the year now looks set to be well below the budget target, writes Cliff Taylor, Economics Editor

In the first five months of the year, €13.25 billion was collected, 15 per cent up on the same period last year. This points to a revival in economic growth and consumer confidence.

The Exchequer had to borrow €494 million in the first five months to bridge the gap between spending and revenue, down from €1,239 million in the same period last year, according to Department of Finance figures published yesterday.

They led economic forecasters to predict borrowing for the full year will be a fraction of the €2.8 billion predicted on budget day.

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The May figures were boosted by €154 million in once-off payments made by taxpayers availing of the Revenue Commissioners' voluntary disclosure scheme for those with undeclared offshore funds.

The closing date for final settlements under this scheme is June 10th.

Tax experts say the scheme is likely to give a significant boost to the Exchequer given an expected flood of settlements in the run-up to the final deadline.

These settlements helped to push income-tax receipts to €3.84 billion, up 22 per cent on the same period in 2003.

Even allowing for the once-off money from the Revenue scheme, income-tax receipts are now running ahead of target, pointing to a recovery in the jobs market.

VAT revenues are also ahead of target, indicating improving consumer spending.

Capital gains tax and stamp duty, which have been strong all year, remain well ahead of target.

While revenues are strong, Government spending is just 4.6 per cent ahead of the first five months of 2003, below the budget target increase of 7.2 per cent.

The Department of Finance says this low level of increase is partly due to timing factors in major spending items.

However, the figures led to strong attacks on the Government from the Opposition parties.

Tax revenues are "rolling in while vital services are being unnecessarily squeezed", according to Ms Joan Burton, Labour's finance spokeswoman.

The Fine Gael finance spokesman, Mr Richard Bruton, said the extra tax take amounted to €300 a month from each household in the country.

He said the Government had refused to adjust the tax code to take account of the greatly increased cost of living families faced, "much of it brought on by the Government's own actions".

He said it was vital that the extra funds delivered real improvements in public services.

Economic forecasters said the figures indicated borrowing would be well below the €2.8 billion budget target.

Dr Dan McLaughlin of Bank of Ireland said tax revenues could overshoot by as much as €2 billion.