There was some better news on tax trends in the exchequer returns for May, with the monthly figures coming in a little ahead of target. This means the overall shortfall for the year has been reduced. Looking at May alone, income tax – the main under-performer in the early months of this year – was broadly on target while corporation tax was better than expected. However, income tax remains well below target for the year so far which is something of a mystery given strong trends in the jobs market.
In the context of the appointment of a new taoiseach, a further shortfall in May might have presented a reshaped Government with the need for some mid-year adjustments in tax and spending plans. But it is important to remember that taxes are still 1.4 per cent behind target for 2017, indicating that the new ministers are not going to have a lot of spare cash when they come to plan their October Budget, assuming the current political arrangements last until then.
The next steps in the Budget cycle are the holding of the National Economic Dialogue, when interest groups outline what they think should happen, and then the publication of the Government’s Summer statement. This will be an important document as it will update the official forecasts for the pre-Budget position, as well as giving indicators of where Government priorities lie.
From where we stand now, it seems likely that there will be a limited amount of additional cash to put towards spending increases or tax cuts. If the new Taoiseach wants to take major new initiatives, then fresh revenue will have to be raised to pay for them or money saved elsewhere. Given that this will be difficult in the current political set-up, the Government might be wise not to invest too much political capital in Budget day.
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Instead it faces other priorities, notably the Brexit process and publishing a new programme for investing in infrastructure. Above all, the first job of the new administration will be to bring some energy back to the policy making process and to the even more difficult job of just getting things done.