Government vows financial caution, but it will be hard

The final exchequer returns for 2017 show that the public finances ended the year on target, with tax revenues 6 per cent up on the previous year to touch a record €50.7 billion.

There is nothing in the figures to suggest that the tax growth target for this year – a similar increase to 2017 – is unrealistic. However it is notable that an overshoot in corporate tax receipts did help last year’s figures. The exchequer is increasingly reliant on this source of revenue, which could be affected by any downturn or by tax changes emanating from the US or Europe.

Looking at exchequer spending, savings were again made on the cost of servicing the national debt. This offset the impact of voted spending ending 0.8 per cent higher than target, up 5.2 per cent on 2016 levels.

The outlook remains broadly favourable. Davy stockbrokers estimates that the budget deficit was 0.3 per cent of GDP last year and will fall to 0.2 per cent this year. On current forecasts the Government will have room, under EU rules, for €3 billion in new tax and spending measures in the budget, by far the most significant amount since the crisis hit.

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The Government has promised to take a cautious line. However, the nature of the current political arrangement – and the huge demands in areas like health and housing – will make this difficult.

Remarkably, claims are already being put on budget resources for 2019, with the Independent Alliance calling this week for some welfare rates to rise by €10 a week next year. There will be more – much more – of this to come.

The Government needs to keep an eye on the wider picture. The economy is not yet overheating, but some areas are approaching capacity.

The danger of a breakdown in the Brexit talks and the UK crashing out of the EU without a deal in spring 2019 remains real.

Strong euro zone growth means that ECB interest rates could start to rise next year. And fast-growing corporation tax receipts remain hard to predict.

These are all reasons to maintain some leeway in the public finances. The question remains: can Irish budget policy finally move away from the famous dictum of former finance minister Charlie McCreevy that when we have money,we spend it?