Money is flooding in, but can we spend it?

The exchequer returns for February, due to be published today, look certain to show another strong month for the government finances.

Rising employment continues to support income taxes, and the long-awaited increase in consumer spending is feeding through to Vat and excise returns. New car sales in particular are giving a boost to the exchequer. At the end of January, tax returns were running €460 million ahead of the previous year – after adjusting for the impact of the Single European Payments System – and further ground was made last month.

As the general election draws closer, rising tax revenue means demands for more spending will only grow, as pressure builds up for more resources in crunch areas such as health, childcare, public pay and for a pick-up in State investment spending. With the Government now planning a “spring statement”, outlining the goodies in store for 2016, the departments of finance and public spending will quickly come under increasing pressure to bow to political “realities” in the run-up to the general election.

The problem is, however, that the EU budget rules put a cap on the amount we can spend and on growth in spending over the next few years. Better tax figures give some flexibility, but only a bit. If the money keeps flooding in via higher taxes, a frustration for Ministers will be that the EU rules will still limit what they can plan to spend next year. Europe is set to provide some leeway in the case of investment projects, but only in specific circumstances.

All this also makes the debate on where any revenue from the sale of part of the state’s stake in AIB should go a bit academic. Labour sources were briefing at their weekend conference that people should get a “social dividend” – perhaps via higher childcare spending – from the sale, contrary to Minister for Finance Michael Noonan’s plan to use the money to pay down debt. However, with the State sitting on a huge cash pile and able to raise cash for almost nothing on the markets now, access to funds is not an issue. It is, again, the EU rules which limit spending growth.