Exchequer figures reflect sustained growth in economy

Latest figures from the Department of Finance have again underlined the economy's continued strong growth.

The Exchequer figures for August showed overall revenue growing at 15 per cent year-on-year, pointing to continued growth of more than 10 per cent in the economy.

The overall surplus came in at £3.48 billion (€4.4 billion) in the year to August, compared with £5.86 billion in the same period in 1999. But the main difference was the inclusion of the sale proceeds of Telecom in the 1999 figures.

According to Dr Dan McLaughlin, chief economist at ABN Amro, the continued rise in revenue means the Government is likely once again to exceed its revenue and supplies forecasts.

He said that in June the Government announced it would exceed its revenue target by around £650 million. That was on the back of projected growth of 12.5 per cent in revenue. However, that has now accelerated to 14.9 per cent from 14.7 per cent in July.

Dr McLaughlin predicts the Government will exceed its initial projections by around £1 billion, bringing the Exchequer surplus to around £2.3 billion if spending is not increased. Mr Dermot O'Brien, chief economist at NCB Stockbrokers, is in broad agreement, estimating that £2.3 billion will be paid off the debt at the end of the year.

Tax revenues were up across all headings, with strong growth in excise duties and VAT in particular indicating there was no slowdown in consumer spending.

VAT has been running at more than 20 per cent for most of the year and is still at just over 21 per cent. Excise duties were also up strongly at 11.2 per cent from 11.7 per cent in July and compared with a Budget target of only 4.9 per cent.

Income tax has seen some slowdown as the Budget day tax cuts kick in. But it is running at 12.6 per cent ahead of last year, more than four times higher than the 2.8 per cent projected in the last Budget.

This implies that employment growth is still running strongly ahead. According to Dr Mc Laughlin, it could mean around 100,000 new jobs this year or at least 7 per cent growth.

Corporation tax is picking up. But it is still running behind the Budget day target, a fact that is puzzling to most commentators. At the publication of the half year figures, the Department of Finance said it related to some issues at individual companies.

So far this year around £2.3 billion has been taken in corporation tax compared with the budget target of £3.1 billion.

According to Mr O'Brien, the shortfall could be as high as £135 million which he said is not that large when the increased revenue from other taxes is taken into account.

On the spending side the figures have begun to pick up a little. August is generally not a high spending month but nonetheless it appears that some increased expenditures are beginning to feed through.

The Government has already announced increased spending of around £500 million. This was made up of higher spending on pay and to compensate for social fund receipts which will not arrive until 2001. Mr O'Brien also said there was significant additional capital spending on roads, accommodation and the national stadium.