A surge in tax revenues in the first six months of the year means that the Exchequer finances will be in the black by at least £700 million over the full year. The unprecedented strength of the figures now looks certain to fuel demands for cuts in taxes and increases in spending in next year's Budget.
Department of Finance forecasters are now predicting that tax revenues will be £800 million higher than predicted at Budget time. As a result, they have abandoned their earlier forecast of an £89 million surplus of Exchequer revenue over spending for the full year and now expect a surplus of £700 million. It will be the first Budget surplus in fifty years.
The half-year Exchequer figures, published yesterday, indicate that this could well be the strongest year of the economic boom so far, according to the second secretary at the Department of Finance, Mr Michael Tutty. Economic growth appears to have gathered pace in the first half of the year, leading to a surge in almost every category of tax receipts.
Unlike previous years, the excess in tax revenues cannot be used to increase government spending this year. The Minister for Finance, Mr McCreevy, has already given a commitment to the European Commission and our EU partners that any excess tax revenue will be used to increase the Government surplus or to pay off the national debt.
However, the Department of Finance has warned that there are pressures on government finances, including Garda and prison officers' pay and overtime. Mr Tutty refused to be drawn on the extent of the Garda pay award or how much money had been provisionally put aside to cover it. But he said that lower unemployment payments and booming PRSI receipts would offset the bill.
The strength of the Exchequer finances will carry over into next year, which will fuel demands for tax reductions and spending increases in the 1999 Budget. Mr McCreevy laid down a marker in a statement accompanying the figures, saying he hoped to "significantly" reduce debt levels over the coming years.
However, he said that this would be possible while still meeting the targets of the Coalition's Programme for Government, indicating that some tax reductions are in prospect.
The economy is now growing so strongly that in the first six months of the year almost £8 billion in tax revenue flowed into the official coffers, 13 per cent ahead of the same time last year. Meanwhile, spending is in line with Budget forecasts.
The strength of the economy was underlined by separate figures from the Central Bank, which showed that borrowing from banks and building societies in April was running more than 24 per cent ahead of last year.
Strong economic growth is benefiting almost every area of the Exchequer finances. These were in surplus to the tune of £1,257 million in the first half of this year, compared to £721 million in the same period last year. This surplus will be reduced during the second half of the year. However, while the Department expects an endof-year total of £700 million, most private-sector analysts believe that the annual surplus of revenue over spending could reach £1 billion.
The Department will now be revising its growth and employment forecasts upwards. At the end of March, it was predicting growth of 7 per cent of GNP and 48,000 new jobs. "These will undoubtedly be increased", Mr Tutty said.
All taxes are well ahead of the Department's estimates. Income tax is 10 per cent up on the first half of last year due to increasing employment and wage rises, while corporation tax is up 24 per cent.
The continued boom in house prices mean that stamp duty is over one-third higher than last year. Over £257 million was paid in stamp duty in the first six months of the year. Excise duties were also up significantly, with car sales boosting the figures and tobacco sales growing strongly.