Cantillon: tax projections designed to temper expectations

In this week’s Summer Economic Statement, the Government predicts its year-end tax take will be about €48 billion, more than 5 per cent up on last year.

By any stretch of the imagination, this is conservative; not least because tax receipts for the first five months of the year are already 9 per cent above profile, courtesy of the continuing windfall in corporation tax.

Essentially, the Government has €774 million more than it thought it would and there are still seven months to go.

However, the Department of Finance cautions that some of the excess relates to the overpayment of tax by companies, which may be clawed back later in the year.

The warning, while valid to a point, is most likely designed to temper budgetary expectations.

It also fits with Fine Gael’s long-standing policy of under-promising and over-achieving, forged when the troika ruled the roost.

Launching the statement, Minister for Finance Michael Noonan said the "fiscal space" for the next five years would be €11.3 billion.

This is more than the €8.6 billion that was signalled last October, reflecting the current strength of the economy and the associated tax dividend. However, the conservative nature of the Government’s tax projections means the fiscal cushion could be even larger, which is somewhat ironic given Noonan took a bashing during the recent election for suggesting it could be as large as €12 billion.

The rapid turnaround in the State’s financial fortunes means Ireland’s debt burden is also expected to fall to 88 per cent of GDP by the end of this year, down from a peak of 120 per cent in 2012.

That said, the ratio shouldn’t divert attention from the fact the debt – €184 billion in absolute terms – is still massive by international standards.

In addition, the downside risks to Ireland’s economic progress are mounting.

By the Government’s own calculations, Brexit could result in a 1.2 per cent drag on Irish GDP, equating to roughly €2.5 billion over two years.

This has the potential to gobble up more than the Government’s planned budgetary adjustment for 2017 and 2018, which totals €2.2 billion.

How much of the gradual slowdown in global trade will be reversed if Brexit goes away cannot be gauged at this stage.