Just days after the introduction of the euro has come evidence that the economy here continues to surge ahead. Much will change with the advent of the single currency, but the Exchequer figures for last year tell the same story as every set of returns in recent years, providing evidence of a booming economy which has again pushed tax revenues well ahead of expectations at the start of the year.
Government forecasters point out that the boom cannot continue at the same pace as the global and British slowdown will have to have some impact, at least on exports. So far there are no signs of any sort of a slowdown, although if the downturn gathers pace there is no doubt that we will be affected.
The surplus of Government spending over revenue for 1998 was £747 million, the largest ever surplus and significantly ahead of the £89 million deficit forecast by the Minister for Finance, Mr McCreevy, when he was announcing the 1998 Budget.
The main reason for the surplus is the huge amount of extra tax taken in by the Revenue, which ran well ahead of expectations. Some £16.13 billion flowed into the Government's coffers from tax, 13 per cent ahead of 1997, compared with a Budget target of 6.3 per cent growth.
Almost all types of tax were significantly ahead of expectations and, overall, the excess over the Budget target came to about £962 million. Employment growth was reflected in the £214 million in additional income tax compared to target, while an extra £139 million in corporation tax reflects strong profits growth. Meanwhile, soaring car sales, as well as tobacco revenue, brought in an additional £163 million in excise duties.
Overall Government spending has, of course, also been rising rapidly. Spending increases in 1999 are now estimated at 5.3 per cent, making an annual average increase of 4.05 per cent over the two years from 1997-1999, just on the Minister's own 4 per cent target.
In early December, Dr Michael Somers, the chief executive of the National Treasury Mangement Agency, pointed to the high surplus at that stage and pointed to how much spending would be needed to meet the target. The figures show there was a high level of spending during the month and that substantial cash was left in the Exchequer to meet cheques and other commitments sent out at the end of the month.
The Department revealed that some £56 million earmarked for expenditure in 1998 was not spent at the end of the day. At the same time, a huge £830 million was in the so-called "ways and means" accounts, compared with £270 million in 1997.
This is money needed to cover cheques which have been written but not yet cleared and reflects the high level of expenditure at the very end of the year, according to the Department. The main question is how much longer the economy can continue to perform like this. The Department pointed to the global picture as the most important variable for us now.
With interest rates poised to fall even further over the coming months there will be little the Government can do to cool the domestic economy. Indeed, a slight slowdown globally may be just the medicine this booming economy needs.
Another year of close to double digit growth would be difficult to cope with given the creaking level of our infrastructure and the difficult many employers now report in finding employees. However, it remains to be seen whether the economy can smoothly adjust down a gear and continue with growth rates of 5 per cent plus, which should still be well ahead of our euro partners. If it can, then another year of exceeding Budgetary financial targets could be in store.
