Government quick to urge caution as fiscal picture improves

A positive set of exchequer returns has delivered a boost to the Government as Cabinet business resumes today after a six-week break.

However, the mood is tempered by the fact that the Ministers must confront the threat to Irish troops in the Golan Heights. They will also discuss the recent abortion controversy.

The Coalition entered the summer period in the wake of a bruising in the May elections, a bruising which cost Eamon Gilmore the Labour leadership and his job as tánaiste. As autumn begins the Government is taking the benefit of increased consumer spending and the rise in job-creation. This will make it easier for Enda Kenny to consolidate his relationship with Joan Burton, Gilmore’s successor. The question of where the axe falls is no longer the prime agenda item.

In question now is whether Ministers can contain mounting expectations of an easing of the tax burden in the budget in mid-October.

Also in question is whether the uplift in the public finances continues as the rate of tax collection and public expenditure this month will have a crucial bearing on the budget.

Although the Government was especially quick to urge caution when the Department of Finance released the figures, there is no doubt that the fiscal picture is improving steadily. A budget day retrenchment of less than €1 billion looks more likely, well down from the original forecast of €2 billion.

Water charges will still be imposed next year for the first time so it’s not all rosy.

Take note also that the Government still borrowed more than €6 billion in the last eight months – €800 million per month – and health spending overruns continue.

Yet the latest figures go to show that the nascent recovery is taking hold. They suggest the Government can seriously contemplate a modest easing of the income tax burden next year, with a view to further income tax cuts in 2016 and beyond.

After a long succession of austere budgets the 2015 fiscal plan could mark something of a turning point. Both the universal social charge and threshold at which the higher income tax rate kicks in are likely to be tackled.

European supervisors and the IMF were opposed to a reduction in the rate of adjustment.

The latest signs, however, suggest that officials on the EU side at least are inclined to accept assurances from Dublin that a budget deficit below 3 per cent of economic output can be achieved next year without a €2 billion package. A further factor is a push by Minister for Finance Michael Noonan to strike a deal to repay Ireland’s IMF loans early, which could yield annual savings of €400 million.