NEW FIGURES published yesterday by the Department of Finance suggest that the Government’s finances are on track to meet 2012 targets set out in last December’s budget and laid down in the terms of Ireland’s bailout.

Exchequer revenue and spending were both running ahead of target in the six months to June, but as outgoings overshot by 1 per cent while inflows were 3 per cent above target, the net effect was a smaller-than-planned exchequer deficit in the first half of the year.

The largest sources of tax revenue – income tax and value added tax – were both running ahead of target in June.

Income tax revenues in the January-June period rose from €6 billion in 2011 to €7 billion in the same period this year. Most of the increase was anticipated in departmental targets owing to increased revenues flowing from the universal social charge.

Value added tax was very marginally ahead of target over the first six months and only 2.2 higher than the same period last year, at €5.2 billion. The small increase comes despite a two percentage point increase in the VAT rate introduced at the beginning of the year.

Less positively, VAT receipts in each of the past three months have been below target. This suggests that consumer spending in the second quarter of the year may have weakened further.

On the spending side, the big-spending departments of health and welfare account for the small overall overrun in the first half of the year.

While total current spending stood at €21.3 billion in the first six months, investment spending by the Government was 7 per cent below expectations and one-fifth down on January-June 2011, to stand at €1.1 billion.

In a statement accompanying the publication of the figures, Minister of Finance Michael Noonan, and Minister of Public Expenditure and Reform Brendan Howlin said “the exchequer returns for the first six months of the year give a clear indication of the progress that has been made in restoring order to the public finances and we are confident that the 8.6 per cent of GDP general government deficit target will be achieved”.

Commenting on the figures, chief economist at Davy Stockbrokers Conall Mac Coille, said “[trade] unions are resistant to changes in the €800 million (0.5 per cent of GDP) overtime, allowances and premium pay bill”.

“This raises concerns that the Government may struggle to achieve savings in a key area of the public sector.”