Exchequer returns continue extremely buoyant, leaving substantial room for Budget Day tax cuts and spending increases, according to the latest figures from the Department of Finance.
The excess of receipts over expenditure at the end of October was some £5.5 billion (€7 billion) or £1.9 billion when privatisation receipts are taken out of the equation. This compares with £1.3 billion at the end of last year.
According to Mr Colin Hunt, chief economist at Goodbody Stockbrokers, this leaves the Minister for Finance, Mr McCreevy, with about £1 billion to safely implement tax cuts and spending increases on Budget day on December 1st.
This will allow both upper and lower tax rate cuts as well as the completion of the move to a tax credit system and a substantial increase in allowances. It should also leave enough room for the Government to increase the old age pensions to £100 a week earlier than it had promised and more resources to be diverted to tackling the childcare crisis as well as other social welfare increases.
According to Mr Hunt, this is the last opportunity which the Government will have to properly tackle the taxation system. Given the funding which the new pension fund scheme and the National Development Plan are going to require, the Exchequer finances this year offer the Minister the best opportunity to position the Irish labour market for the decade ahead, he said.
A one percentage point cut in the top rate of tax will cost the Exchequer about £78 million with a similar cut in the standard rate costing about £192 million.
The National Development Plan, due to be presented before the Budget, will involve spending plans of some £40 billion. Even with ongoing tax buoyancy this may not be sustainable when the economy slows down. However, none of this year's money will be going towards the plan.
The Government has also made a substantial commitment with its new pension scheme. The bulk of this year's privatisation receipts as well as some 1 per cent of GNP will go towards starting the fund which will be used to pay public sector pensions in the years ahead.
Overall this will leave a surplus of £1.9 billion for the year as a whole and around £1.3 billion available to be paid off the debt, according to Mr Hunt.
Yesterday's figures also revealed that spending is beginning to pick up quickly. Voted current or day-to-day expenditure is rising by some 15 per cent, which is excessive even for an economy growing as quickly as that of Ireland. At the same time tax revenue grew by some 14 per cent to the end of October compared with the first 10 months of last year.
Excise duties are also rising very quickly at some 13 per cent. But stamp duty and corporation tax continue to accelerate most strongly. Stamp duty is up some 27.7 per cent to the end of October as house prices and equity sales continue to boom, while corporation tax is some 29 per cent ahead of the same period last year.
VAT is up 15 per cent while income tax receipts are up 9 per cent, reflecting the tax cuts introduced in last year's Budget.
The continued strong growth in all areas of taxation points to even stronger growth than predicted in the overall economy. Goodbody Stockbrokers has increased its forecast to 8.1 per cent in line with the more long standing bullish prediction from ABN Amro as the forecasted pick-up in imports over exports has failed to materialise.
