Record tax take likely to add to public pay deal pressure

Exchequer figures shows State raises €4bn with bonds and unemployment drops

Economists now estimate that the budget shortfall for last year came to 0.7 per cent of the size of the economy, the lowest since the financial crisis began in 2008. File photograph: Thierry Roge/Reuters

Economists now estimate that the budget shortfall for last year came to 0.7 per cent of the size of the economy, the lowest since the financial crisis began in 2008. File photograph: Thierry Roge/Reuters

 

The Government may face fresh pressure to increase public spending this year, as new figures show the State’s finances were boosted by a record tax take of €47.9 billion in 2016.

Economists now estimate that the budget shortfall for last year came to 0.7 per cent of the size of the economy, the lowest since the financial crisis began in 2008, compared with the Government’s official target of 0.9 per cent.

The exchequer figures released by the Department of Finance yesterday “emphasise just how much progress has been made in restoring order to Ireland’s public finances in recent years,” said Austin Hughes, an economist at KBC Bank Ireland.

However, they add to “pressures to ramp up public spending,” he said. “That means 2017 will see continuing strains on public finances as the Government attempts to strike a balance between the prudent and politically feasible.”

The exchequer returns figures were published on the same day that the Government raised €4 billion by borrowing on international markets, covering close to half of the minimum amount it plans to raise for the entire year. Meanwhile, data from the Central Statistics office showed the unemployment rate fell to 7.2 per cent in December, the lowest since August 2008.

This comes as the Department of Public Expenditure prepares to begin talks this month with trade unions on public-sector pay against the backdrop of a Labour Court recommendation of a €50 million pay award for gardaí, which sparked fury from other unions who want similar terms to be afforded to their members.

Slowing growth

Philip O’Sullivan, an economist with Investec, said however that the Government’s ability to meet rising spending demands may tighten as economic growth slows a touch this year.

“There are also a number of known banana skins out there that could result in the Government’s fiscal space turning out to be smaller than originally had been assumed,” said Mr O’Sullivan. He added that the incoming US administration, Brexit and a number of national elections in Europe were clouding the geopolitical outlook.

The 2016 exchequer figures were, despite the solid headline tax intake, mixed in their detail.

While tax returns, at €47.9 billion, rose 5 per cent on 2015 and were 1.4 per cent above what the Department of Finance had forecast earlier last year, they fell slightly short of the €48.1 billion the department was projecting when the 2017 budget was unveiled in October.

Corporation tax

Corporation taxes advanced 7 per cent in 2016 to €7.35 billion, but they plunged 43 per cent in December to €289 million, compared with the same month last year. Department of Finance principal office John Palmer said the “disappointing” decline last month was largely down to an unnamed company receiving a €150 million tax refund.

Still, the overall budget deficit for last year, at just over €1 billion, came in €430 million narrower than the department had forecast in October. This was driven in part by the State’s €2 billion contribution to the European Union budget coming in below expectations, while dividends from State-owned companies, including ESB and Ervia, were higher than anticipated.

The social-protection bill came in 1 per cent higher than forecast, at €19.8 billion, purely down to a Government decision in the latter part of the year to fully restore a Christmas bonus to social welfare recipients. The payment was abolished in 2009 and reinstated in part in 2014.