STRONG growth in tax receipts indicates that Government borrowing will probably be eliminated completely this year, and the economy is growing much more rapidly than expected. The half-year Exchequer figures also indicate that the new Minister for Finance, Mr McCreevy, will have considerable scope for tax cuts in next year's Budget, to be delivered in November.
Official figures published yesterday showed that soaring tax revenues have left the State's finances at their most buoyant ever. The surplus of receipts over spending in the first half of this year was a record Pounds 732 million.
Also yesterday, sterling soared to new highs against the German mark after the first budget of the new Chancellor of the Exchequer in Britain, pushing the pound back below 91p and threatening new problems for the Government on the currency markets.
Although Mr Brown forecast significant declines in public borrowing with inflation remaining below 3 per cent, City of London economists were concerned that his measures failed to take enough "heat" off the economy in the coming weeks and months, implying further interest rate rises.
In Dublin, the normally conservative Department of Finance is now pencilling in a borrowing requirement of less than Pounds 300 million for the year as a whole. However, stockbroking analysts were last night confidently predicting that the Exchequer finances would be in surplus for the full year for the first time in recent history.
Mr Jim O'Leary of Davy stockbrokers forecast that borrowing will be eliminated completely and said that the figures suggested the economy may be growing at an unprecedented rate of l0 per cent. The strong growth in tax revenues is likely to continue into 1998.
Last night, Riada stockbrokers predicted that Mr McCreevy may be able to deliver tax reductions of up to Pounds 500 million next year while still keeping borrowing at zero.
The huge surplus in the first half of this year is the result of large- scale job creation as well as lower than expected borrowing. The Department of Finance is predicting that tax revenues will be Pounds 500 million ahead of target at the end of the year.
However, private sector forecasters said last night these estimates were too pessimistic and that the overrun would be substantially greater. It could come to at least Pounds 750 million and possibly close to Pounds 1 billion, they said.
Dr Dan McLaughlin, chief economist at Riada stockbrokers, said that if the Government keeps to its promise of limiting Government spending to 4 per cent there is room for income tax cuts of at least Pounds 500 million in 1998, along with zero borrowing.
Dr McLaughlin said he is also expecting zero Government borrowing or even a surplus at the end of the year. In the first half of the year, tax revenues adjusted for some once-off distorting factors grew by 14.4 per cent. According to the buoyant figures, all the main forms of tax are well ahead of target, with income taxes especially buoyant, implying greater than expected job creation.
A breakdown of the figures reveals that income tax receipts are up 16.2 per cent year-on-year, with underlying VAT receipts up a similar amount, implying strong employment and spending growth. Stamp duty was also up 2 3.8 per cent year-on-year, reflecting the continued strength of the housing market.
Only excise duties, among the main forms of tax, failed to grow by double digit amounts, pointing to less spending on cigarettes, alcohol and petrol than on services and sports and recreation.