The Minister for Finance, Mr McCreevy, will have plenty of room for manoeuvre on Budget day, with the Government now forecasting an Exchequer surplus of around £1.9 billion (€2.4 billion). Soaring tax revenues mean this is £300 million higher than forecast on budget day and £100 million higher than the expectation in June. Private sector forecasters say the Government is pessimistic and many expect the surplus to exceed £2 billion at the end of the year.
The third-quarter Exchequer returns showed a surplus of £2.9 billion. Substantial spending on roads and other infrastructure before the end of the year will reduce this figure.
Meanwhile Standard & Poor's, the rating agency, affirmed Ireland's AA+ rating for Irish debt, the second highest possible. The news will come as a disappointment to the National Treasury Management Agency and the Minister, who lobbied hard for an upgrading to an AAA rating. However, S&P did upgrade the State's long-term outlook to positive from stable.
Tax revenues continue to grow strongly and are up 15.4 per cent compared with budget day forecasts of 8.6 per cent. The figures will put intense pressure on Mr McCreevy in the upcoming Budget, with unions likely to point to the resources to finance substantial pay rises alongside further tax cuts.
The Minister has now exceeded his own 4 per cent limit on day-to-day spending, with the average since the Government came to power now running at around 5 per cent per annum. Day-to-day spending this year is running some 10.5 per cent higher than last year.
The overrun from the budget day position is expected to be about £200 million, while capital expenditure is £250 million over target. Spending is coming under pressure in health, education and environment, but savings on social welfare as the live register continues to fall compensate. Additional tax revenue of £800 million more than makes up for any overspending and AIB's DIRT settlement will increase this by £90 million.
Speaking in the Dail last night, Mr McCreevy repeated his pledge that the Government would not withdraw from its partnership commitments on tax and wages due to a misreading of the economic signals. The Budget would be framed in the context of the ongoing situation on inflation, transport, childcare, tax policy, health and education services, he said. In the same debate, the Labour spokesman for finance, Mr Derek McDowell said rising inflation meant that, at a time of unprecedented prosperity, pensioners, the unemployed and the low-paid were worse off than a year previously.
Tax is running ahead of forecasts on almost all fronts. Income tax is up 13.1 per cent, while VAT is up 20.3 per cent and excise duty 11.1 per cent, all well ahead of target. The exception is corporation tax, which is likely to come in below forecast.
