Public finances making headway
ANALYSIS:End of year receipts suggest tentatively that the downward trend could be over
The public finances are in a better state than on budget day (just one month ago), the Government’s cash-based figures for full-year 2012 show.
That is what is known now that many of the tax and spending figures for the final month of the year are in.
The improvement is as much to do with mandarins being cautious in their projections a month ago as it is to do with good news from the December data. That said, there is no disputing that most of the December news – on taxes in particular – was good.
As the chart illustrates, growth in tax receipts began to weaken from early last year. Receipts in November and December suggest tentatively that the downward trend could have come to an end.
Indicators from Christmas and post-Christmas shopping point to a decent outcome in January too. The value-added tax paid by shoppers in December doesn’t clink into the State’s coffers until January. As VAT is one of the largest sources of tax revenue, and as budget tax hikes have just kicked in, strong year-on-year growth in receipts can be expected again in January.
Half of the (very big) year-on-year increase in exchequer tax receipts in December was accounted for by a €400 million increase in profit taxes paid by companies.
Officials confirmed that the two companies accounting for most of this were foreign multinationals. That a company unexpectedly hands over a nine-figure cheque to Revenue might cause an eyebrow to be raised in any context. It will certainly do so when Ireland is being eyed more closely by other countries over the way companies use this jurisdiction to avoid taxes on their profits.
On the spending side, the headline target for the year was missed by only a small amount, with health and social welfare yet again the two overspending departments.
Just before Christmas the IMF was unusually detailed in its critique of health spending overruns. In a report it attributed this to, among other things, the hiring of agency workers and a higher-than-projected number of medical cards. The cost of drugs was unduly expensive, it said, implicitly criticising the Government’s deal with the pharmaceutical industry designed to lower the State’s high medicines spend. Minister for Health James Reilly is likely to be in the wars again this year as much as last.
Minister for Finance Michael Noonan’s claim that the general government deficit – the measure that counts most and is watched most closely – will be below 8 per cent of GDP in 2012 is well grounded from available data.
If that happens, Ireland has a good chance of not topping the euro zone deficit league for the first time since 2009.