Government ministers and Department of Finance officials were in a flurry last night to temper pre-budget expectations after the latest exchequer numbers showed a sharp acceleration in tax revenue between July and August.

At the end of July, tax returns for the year were €548 million ahead of target, primarily on the back of improved conditions in the labour market and a modest revival in consumer spending. In the space of one month this figure almost doubled to €971 million, jumping beyond even the most optimistic forecasts.

So what is going on?

First, monthly corporation tax receipts, which are notoriously unpredictable, came in at €259 million – €117 million or 82 per cent above profile.

This was down to a number of one-off payments made by large companies, on which the department had not banked.

Second, income tax returns were bolstered by an unexpected €70 million from a life-assurance exit tax.

When these one-offs are stripped out, tax revenue is running about €700 million ahead of projections, which is still far ahead of profile but more reflective of the trend witnessed in previous months. Nonetheless, the Government finds itself in a situation of having to manage pre-budget expectations that are ballooning by the day.

Caution

Taoiseach Enda Kenny warned that the Government was not in a position to “write large cheques”, while Minister for Finance

Michael Noonan

cautioned the State was still having to borrow €800 million a month to pay its way.

All of which suggests the Government has lost control of its positive message about the economy.

Bearing in mind that nearly 40 per cent of the annual tax take has yet to materialise, including returns for November when the self-employed file taxes, a lot can happen between now and the end of the year.

The department is expecting about €6.1 billion in tax returns in November, including €2.6 billion in income tax, which is about twice the normal monthly tally.

The Government will have to do its budgetary arithmetic in advance of this, which is fraught with potential risk, especially when its chief task is to hit a budget deficit target of 3 per cent next year.

The final quarter of last year was characterised by an unexpected flatlining in gross domestic product on the back of a fall- off in pharmaceutical exports, which took most forecasters by surprise.

While the patent expiry issue in the pharmaceutical sector appears to be less pronounced this year, dismal euro zone growth and inflation numbers still pose significant risks to Ireland’s hard-won recovery.

All told, the Government is right to try and temper expectations . Whether it will be able to do so is another matter.