Fiscal watchdog backs Coalition’s economic forecast

The Government has received a further boost ahead of the forthcoming budget with the latest exchequer returns showing tax revenue still running ahead of target.

The news comes shortly after the Central Bank raised its GDP growth forecast for the year to 5.8 per cent, as against 4.1 per cent previously.

The latest exchequer figures show tax receipts for the first nine months of 2015 totalled €31.6 million, €1.7 billion or 5.8 per cent ahead of target and up €2.7 billion or 9.5 per cent on an annual basis. This helped reduce the exchequer deficit to €1.04 billion, down from €5.9 billion for September 2014.

The improvement in the exchequer balance was driven largely by increased tax receipts, reduced expenditure and a number of one-off transactions, according to the Department of Finance .

Minister for Finance Michael Noonan said the Irish Fiscal Advisory Council has endorsed the Government’s economic forecasts on which the Budget will be predicated. The Government believes GDP is on track to grow higher than that forecast by the Central Bank, up 6.2 per cent this year and by 4.2 per cent in 2016.

The Minister said the fiscal package he will unveil on Budget day will be close to €1.5 billion but he insisted that the Government would go no further than that.

Although the Central Bank this morning called for a neutral budget, Mr Noonan said the Government’s plan to expand the budget by between €1.2 billion and €1.5 billion has already been endorsed by the Fiscal Council.

Citing the 9.4 per cent unemployment rate, Mr Noonan said there was still plenty of slack in the economy and that it was correct to proceed in this way.

The Government is working on the basis that the deficit this year will come in at around 2.2 per cent, he said. The full-year cost of servicing the national debt will reduce to €6.7 billion from €8.2 billion in 2014. This follows arrangements to refinance expensive IMF loans.

Minister for Public Expenditure Brendan Howlin said there would be supplementary budget estimates later this year for the health, transport and education departments.

September’s exchequer returns benefitted from a big boost in corporation tax receipts on the back of improved trading.

Corporation tax receipts for the nine months to the end of September totalled €3.9 billion, up €1.2 billion or 45.7 per cent compared to the same period a year earlier and €1.2 million or 44.2 percent above profile.

Income tax, the biggest revenue draw for the exchequer, came in at €12.4 billion, €118 million or 1 per cent ahead of target and up €677 million or 5.7 per cent year-on-year.

VAT generated €9.7 billion, €742 million or 8.3 per cent higher than the same month a year ago. Excise duty was €3.7 billion, up €211 million or 5.9 per cent.

Tax collection is on course to come in €2 billion ahead of target by the end of the year.

Davy economist Conall Mac Coille said September’s returns will increase the pressure for a larger Budget giveaway.

“The Government balance is now €2.85 billion (or 1.5 per cent of GDP) ahead, so our forecast for a deficit worth 1.7 per cent of GDP in 2015 could be a little pessimistic,” he said.