The news that tax revenues continued to run way ahead of target last month is a welcome boost to the exchequer finances. The extent of the overshoot is exceptional and continues to be driven largely by corporate tax receipts. No doubt this in part reflects the economic upturn, but we have also seen in the past how the accounting policies of multinationals can lead to significant swings in tax revenues.
We are told that the latest receipts are solidly based and must hope that this will be the case. But as with any surge in revenues based on one specific area, care is needed, particularly in assuming that the current rate of growth will continue.
There is significant leeway now in the figures. The deficit for this year will be lower than expected even as recently as October, when the Budget for next year was announced. On current trends, the budget could be broadly in balance by 2017. From a position when, a few short years ago, the underlying deficit – before account is taken of the cost of the bank bailout – was over 11 per cent of GDP, this is remarkable progress. It is vital now that we finish the job of stabilising public finances.
Who knows what kind of Budget might have been presented for 2016, had tight EU rules not been in place. As it is, the Government pushed the envelope, within the rules, pretty much as far as it could. It now faces the electorate with a message that it is the prudent manager of the public finances, but also would, if re-elected, put more money back into people’s pockets in the long term. However the Irish Fiscal Advisory Council has warned, given the likely pressures on spending, that overall tax reductions could be difficult to achieve in the medium term.
Time will tell precisely what policies the political parties will put forward for their election campaigns. Of course people will want to pay lower taxes and have better public services. However they will, above all, want some assurance the policies being put forward do not in any way endanger public finances. Above all, the priority must be sustainability and a real commitment to move away from the boom to bust cycles of the past.
As the parties prepare their political platforms, they should realise that the public will greet their promises with some considerable scepticism. Nobody knows what the trend of economic growth will be in the years ahead, but the current period of super-charged Irish growth will not last forever. There is a strong case, given the considerable international uncertainties, to eliminate the deficit quickly and get the debt ratio down to safer levels. The current period of strong growth and low interest rates, gives us the opportunity to do this – it should be taken.