Tax returns provide fresh scope for Government

Coalition can afford to make supplementary budget estimates and still beat fiscal targets

A new batch of exchequer figures puts the Government in an exceptionally strong position as it prepares for Budget 2016 on Tuesday week.

Although there will be no move to increase the €1.2 billion-€1.5 billion expansionary package on budget day, the increasing tax haul means the Coalition can contemplate a series of supplementary budget estimates by year-end and still beat its fiscal targets.

These include another €600 million for the health service, a sum which adds to earlier allocations totalling €130 million for early hospital discharges and the Fair Deal initiative. In addition, a €100 million supplementary estimate for the Department of Transport is on the way to buy buses. The Department of Education is in line for another €50 million for a summer works scheme for schools.

Furthermore, the figures provide scope for the Government to proceed with at least a partial restoration of the Christmas welfare bonus.

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Tax revenue

As the general election looms, the increase in tax revenue points to a broadening out of recovery of economic growth. The budget will be predicated on the achievement of 6.2 per cent GDP growth this year and 4.2 per cent GDP growth next year, forecasts which were endorsed yesterday by the Irish Fiscal Advisory Council.

Exchequer data shows the State received €31.62 billion in tax in the first nine months of the year, the highest tax payment ever in that period. This is €1.74 billion more than anticipated at the start of year, and the September return was €340 million ahead of the official target. The tax overshoot is on course to reach €2 billion by the end of year.

Several factors are at work: strong corporate profitability, the return of people to work and increased consumer spending. Although health and welfare spending is higher than anticipated, the State is drawing a big benefit from lower borrowing costs on the open market and the deal to refinance expensive International Monetary Fund debts.

Having spent €8.2 billion last year to service the national debt, the Government believes debt-service costs will ease this year to €6.7 billion.

Corporate tax payments in the first nine months came close to €4 billion, €1.23 billion more than in 2014 and €1.21 billion ahead of profile.

Trading activity

Citing data from the Revenue, Department of Finance official John Palmer said the return was attributable to increased trading activity across the board and currency factors.

Although the strong performance of the multinational sector has long been a feature of the recovery in Ireland’s tax revenues, Palmer said the data also reflects increased profitability at the level of domestic companies and small and medium-sized firms. One explanation for the higher tax payments was that SMEs were burning through losses incurred in the crash, making more of their current profits liable for corporation tax.

The unemployment rate declined to 9.4 per cent in September, although the data shows that income tax receipts in the month actually came in at €27 million or 2.2 per cent below profile. In nine months, however, income tax collections reached €12.44 billion, up €677 million on 2014 and €118 million above target.

VAT payments, which reflect consumer spending, reached €9.7 billion in the nine months, €782 million more than in 2014 and €222 million ahead of target.