July exchequer returns improve

The Government's exchequer position improved in July due to a rebound in tax receipts and reduced capital spending, according to the latest exchequer returns released yesterday.

Corporation tax receipts continue to disappoint expectations, however, and revenue growth appears increasingly dependent on the domestic economy.

In the seven months to July, the Government received €20.8 billion in tax receipts. This was €1.2 billion higher than the same period in 2004, and €721 million higher than expectations for this period at the time of the last budget.

The main contribution to higher than expected revenues came from strong returns under the headings of Vat, stamp duty and income tax. Vat receipts rose by €814 million in the year to July compared with the same period of 2004. Stamp duties rose by €287 million over the same period of comparison, reflecting strong activity in the housing market. Income taxes rose by €257 million, considerably stronger than the €2 million increase reported in the year to June by the mid-year exchequer release.

Corporation tax receipts fell in the year to July by €465 million, however. Alan McQuaid of Bloxham Stockbrokers attributed this trend to weakness in the manufacturing sector as well as to timing factors.

Net voted spending by government - the dominant portion of total spending controlled by government - rose by 6.5 per cent in the year to July. However, this compares with an expected increase of over 11 per cent and reflects a government under-spend of €800 million relating to lower than expected levels of capital expenditure.

Fine Gael deputy leader and finance spokesman Richard Bruton, TD, reacted to the figures by condemning the lower than expected level of capital expenditure: "Minister for Finance Brian Cowen has given a commitment to extend the capital programme by 10 per cent this year, but doesn't have the capacity to deliver."

The figures also prompted a negative response from Green party TD Dan Boyle: "The loss of close on half a billion in corporation tax is a serious worry."

The Central Statistics Office last week released data for economic growth indicating a slowdown in economic activity during the first quarter of the year. The exchequer figures imply some mid-year pick-up, however.