Tax surge adds to calls for more spending in budget

Latest exchequer figures, which show tax revenues well ahead of targets, will increase the clamour for the Government to draft an expansionary budget in October.

Despite repeated pledges to abide by EU fiscal rules, two senior sources in Government said on Wednesday that Minister for Finance Michael Noonan and Minister for Public Expenditure Brendan Howlin could look at other means or "flexibilities" to increase expenditure without falling foul of the regulations.

The exchequer returns for August show that tax receipts for the first eight months of the year came to €27.3 billion, almost €1.4 billion ahead of projections.

Mr Noonan and Mr Howlin have consistently said they will stick by EU fiscal rules which limit the Government to between €1.2 billion and €1.5 billion in additional spending and tax cuts for 2016.

It is widely accepted the expansionary measures will be close to the upper limit of €1.5 billion, with a 50:50 split between tax cuts and increased measures.

The exchequer figures show increases under all headings, including strong income tax returns. The most spectacular performance has come from corporation tax which is more than €900 million ahead of estimates. If that strong pattern continues, it will mean that revenues to the State will be €2 billion higher than had been projected for the year.

One Government source said that additional funds had been allocated this year that would ease the pressure and increase the scope for spending when the October budget is finalised for next year.

Examples of this expenditure during 2015 have included an extra €75 million for health, in addition to capital outlays on road projects and on the renewal of the Dublin Bus fleet.

Another source pointed to the possibility of off-balance sheet spending on capital projects that would not be subject to the limits imposed by the fiscal rules. They included the setting up of special purchase vehicles (SPVs) for specific capital projects and also for social purposes.

The deficit recorded for the first eight months of the year was just under €1.3 billion, with expenditure also slightly lower than projected.

That amounted to an improvement of €3.5 billion in the underlying exchequer position. The 10 per cent increase in tax revenues, year-on-year, compared to 2014, reflects the significant increase in the number of people working in the economy, which will be confirmed by the latest Live Register figures to be published by the CSO later on Thursday.

Responding to the figures, Mr Noonan said: “We are well on track to exceed our targets. The public finances are in a strong position as we prepare to deliver the budget.”

External factors

Mr Howlin said: “Consumer sentiment as reported by the ESRI is also up. The public finances are well on course now to meeting the 3 per cent deficit target.”

Fianna Fáil finance spokesman Michael McGrath warned that the Government would need to remain vigilant to external threats.

“The strong receipts for August are to be welcomed. External factors such as the weak euro, low interest rates and ECB’s quantitative easing have had a massively positive effect on the Irish economy.”