The Government may just scrape past its budget targets

Exchequer will require a strong tax performance in November and December

The Department of Finance has said that to fund new spending commitments, tax will have to come in on target

The Department of Finance has said that to fund new spending commitments, tax will have to come in on target

 

In recent years this Government and its predecessor made sure to leave wriggle room in meeting annual budget targets. This generally allowed an outperformance of targets at the end of the year when a lower borrowing level than expected would be heralded as further evidence of our move back to financial health.

Now, however, the numbers are getting tighter. The Government will probably meet its revised target of getting borrowing down to 0.9 per cent of GDP this year. But doing this will require a strong tax performance in November and December. If taxes do not show more buoyancy than they have in recent months then the deficit target will only be met if spending also comes in below target.

After years of smashing the annual target, this year the Government may at best just get over the line. The reason for this is twofold.

The first is that taxes, while well ahead of last year, are now just 1.7 per cent ahead of target levels, with corporation tax the only area ahead of target. Now the Government needs VAT and income tax – both slightly below target for the year – to have two strong months. Income tax was, indeed, firmer in October, and the key self-employed returns in November will be key. VAT could be hit by cross-Border shopping.

The second reason why it is more of a challenge to meet the deficit target is that the Government agreed to a number of new spending commitments, amounting to €850 million, including extra money for health, justice and the social welfare Christmas bonus. The Department of Finance pointed out that to fund these commitments, tax would have to come in on target. In the new world of EU financial rules this is how it works.

Spending is now starting to come under upward pressure as demands on the Government grow. All of these spending increases are added to the base for 2017 – and at the same time there is obvious pressure on public pay. Meanwhile the Brexit impact could slow economic growth and tax revenues.

Whatever about the end of this year, 2017 could be an interesting year for the public finances.