Exchequer returns signal scope for easier 2015 budget

May figures show Government taking in more tax than foreseen and spending less

Minister for Finance Michael  Noonan suggested yesterday that the €2 billion adjustment projected to achieve the European deficit target of 3 per cent in 2015 might not be necessary.

Minister for Finance Michael Noonan suggested yesterday that the €2 billion adjustment projected to achieve the European deficit target of 3 per cent in 2015 might not be necessary.

Thu, Jun 5, 2014, 01:18

The Government has received a boost from

tax returns as the increase in job creation continues to ease some of the strain on the public finances. The trend, if continued, could lead to an easier budget in October.

Ahead of difficult Coalition negotiations on the fiscal plan for 2015, Exchequer returns for May show that the Government is taking in more tax than foreseen and spending less. The figures come amid concern in Fine Gael that Labour’s leadership contest will make agreeing the next budget more difficult.

The Coalition has also come under renewed pressure on the budget from the European Commission, which intervened this week to say there should be no slackening in the rate of retrenchment.

However, the new data point to a steady improvement in income tax returns and lower spending than anticipated on social welfare. Although health expenditure is well above target, the figures are seen as a sign that real gains from the recovery in the jobs market are now evident.

Higher than forecast

The Department of Finance said €15.6 billion in tax was collected in the first five months of the year, 5.6 per cent higher than in 2015 and €446 million or 2.9 per cent higher than its own forecast.

Income tax, which is the single biggest tax heading, generated €6.6 billion in the period, up 7.8 per cent on 2013, and €114 million, or 1.8 per cent, ahead of profile for the period.

A Department of Finance spokesman said the outturn for income tax was the strongest indicator yet of increased job creation. Unemployment has fallen from its peak in 2012 of 15.1 per cent to 11.8 per cent this year.

The performance, if maintained, has the potential to give Minister for Finance Michael Noonan additional leeway to ease the rate at which taxes are increased and spending is cut on October 14th.

Mr Noonan suggested yesterday that the €2 billion adjustment projected to achieve the European deficit target of 3 per cent in 2015 might not be necessary.

Relevant figure

“I don’t think €2 billion is the relevant figure. The relevant figure is to get the deficit below 3 per cent of GDP,” he told reporters.

“With the tax numbers out this afternoon, and a couple of other things on the horizon, it might be possible to deliver a deficit of below 3 per cent without an adjustment of €2 billion.

“But it’s only early June so there’s a lot of things will move in the next three or four months. We’ll have a better idea as we come closer.”

The exchequer figures also show that the Government’s value added tax intake came in ahead of expectations in May, up 4.4 per cent on last year and €39 million, or 0.7 per cent, better than forecast.

Health overrun

The main overrun is once again in health, with spending €144 million, or 2.8 per cent, ahead of profile.This was offset, however, by lower spending than anticipated in several other departments.

The most notable was the Department of Social Protection, where spending was €138 million, or 2.7 per cent, lower than expected.

On the basis of these figures, the Government is on course to hit its budget deficit target for 2014 of 5.1 per cent of gross domestic product.

The cost of servicing the national debt to the exchequer was €4.07 billion so far this year, a decrease of €177 million or 4.2 per cent on last year. Overall, the exchequer deficit stood at €3.5 billion at the end of May, down from €5.3 billion at this stage last year.