THE Government's finances are in the black for the first time in 30 years with a surplus of £185 million for the first nine months of the year.
The surplus is mostly due to much better than expected tax revenue this year. The Department is predicting that the overall tax take will be at least £300 million higher than budgeted for at the beginning of the year.
At the same time, leading analysts are predicting interest rate cuts of between 1 and 2 per cent before the end of the year.
The current budget was in surplus by £520 million, while capital borrowings came in at £335 million. The Government now has a cash balance at the Central Bank of more than £1.6 billion.
All major taxes showed significant increases with the overall take up 10.7 per cent on last year. VAT, excise duties and corporation tax were all very strong. Custom duties were the only exception.
In September, a £50 million reimbursement of EU budget contributions also boosted the Exchequer.
On the other side, spending was also above target. Current spending was up 5 per cent in the first nine months, compared to an official target increase for the year of 4.6 per cent.
Over the rest of the year, the tax take is expected to slow down a little while spending will pick up further, leading to an expected borrowing requirement for the year of between £350 million and £450 million, according to Mr Michael Tutty, second secretary at the Department of Finance.
Spending is expected to be running around £100 million to £200 million above target by the end of the year. This is mostly due to extra spending in health, agriculture and social welfare, he added.
The live register is expected to be "no more than 284,000" at the end of the year, while 45,000 new jobs should be created over the full year. The additional social welfare spending from this and the extra allowances at Christmas should be offset by the 9.7 per cent increase in PRSI receipts over this time last year, Mr Tutty said.
The Government is also having to make increased provision for EU agriculture disallowances, for the BSE crisis and for expenditure on the crime package.
The Minister for Finance, Mr Quinn, welcomed the returns. "The Irish economy's true potential for growth is now being realised," he said. "The cumulative surplus at end September is a very significant achievement which is unprecedented in a generation."
The figures also boosted demand for Irish Government bonds, putting further downward pressure on interest rates. One of the major stockbrokers, NCB, yesterday predicted that interest rates could fall by as much as one percentage point by the end of the year.
According to the NCB commentary, the Central Bank is fast running out of room for manoeuvre. "The Central Bank cannot hold down the exchange rate and maintain current interest rate levels because demand for Irish pounds clearly exceeds supply at these levels," the report states. "If the currency is not allowed to rise, interest rates must fall to bring demand and supply into balance."
The recent selling of pounds by the Bank has been prompted by a desire to maintain the value of the farmers' "green pound" by which their level of subsidies is determined. If that policy continues, rates will fall, analysts warned.
Mr Han de Jong, chief economist at Goodbody Stockbrokers, warned that interest rates could fall by as much as 2 per cent over the rest of this year. "That would be disastrous for the economy," he said.
