ONE SWALLOW does not make a summer. And neither do exchequer returns for a single month mean that revenue and spending targets – so recently set after the April emergency budget – will necessarily be achieved by year-end. Certainly, there are some grounds for encouragement in the end of May figures released yesterday. Nevertheless, the poor track record of the Department of Finance in forecasting tax receipts and in estimating spending, particularly in recent months, suggests a degree of caution is merited at this stage.
After the April budget, the department published a monthly profile of the expected revenue receipts and spending increases for the remainder of the year. For May, both revenue and spending have broadly matched that profile. Income-tax receipts have held up well, boosted by the income levies introduced in the recent budget. However, tax revenue was €3.6 billion lower than over the comparative five-month period in 2008 while Government spending has shown a small increase in the same time period. The result is an exchequer deficit of some €10.6 billion – or three times what it was a year ago.
The question now is how 2009 living standards can be financed on a 2003 level of tax revenue. The answer is with great difficulty, and only with a high – and unsustainable – level of borrowing. This huge gap between revenue and spending must be bridged over the next five years as borrowing is reduced, and the public finances are brought back into balance. As Minister for Finance Brian Lenihan again made clear yesterday, “the majority of the future budgetary adjustment will have to be borne on the spending side”. This is a painful prospect in the years ahead.
It may be premature to hail the end of recession, given that the economy is expected to contract by 9 per cent this year, and Ireland, as one of the world’s most open economies, must rely mainly on global growth to help achieve that recovery. Nevertheless, there are a number of positives: not least an indication of stabilisation in the public finances, and some other signs that the pace of economic decline is slowing. It may well be the case, as Taoiseach Brian Cowen noted yesterday, that a “bottoming-out” is under way. It is always difficult to pinpoint precise economic turning points. But as Mr Cowen has also rightly observed, economic recovery will be more a marathon than a sprint, in a race that may yet take five years to run.