Government takes in €980m more tax than expected

A surge in tax revenues meant the Government's budget surplus was €880 million at the end of June versus a €594 million deficit…

A surge in tax revenues meant the Government's budget surplus was €880 million at the end of June versus a €594 million deficit recorded in the first six months of 2005, according to the Exchequer returns for the first six months.

The Department of Finance, which had a surplus of €1.841 billion at the end of May, said revenue from taxes in the first half of 2006 was almost €19.6 billion compared to €17.2 billion in the same period last year.

"The full year forecast is for an increase of almost €2.4 billion so the reality is that the target has been met with six months to spare," Rossa White, economist at Davy stockbrokers, wrote in a research note.

The finance ministry itself said the 13.6 per cent rise in the tax take had been well ahead of the 7.9 per cent increase it had budgeted for, thanks to strong growth in income from corporation, property and capital taxes.

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The government, which last year reported a much smaller than expected deficit of €499 million as a thriving economy and booming property market topped up government coffers, had been forecasting a 2006 deficit of €2.927 billion.

But Mr Cowen told RTE he now expected the shortfall to be a third of that.

"The tax payers of this country will have a situation where their government will not be borrowing €3 billion as envisaged but more like €1 billion," Mr Cowen said.

Strong tax returns mean analysts have been steadily revising their own full-year outlooks for Ireland's finances, and economists said the final picture could be even brighter.

"We now think there is every chance the Government will post a surplus of €500 million or more come year-end," said Alan McQuaid, Chief Economist at Bloxham stockbrokers.

The Government's strong budget position meant there would be "no great pressure" on Ireland, which last sold bonds in October last year, to issue new debt in 2006, he added.

Mr White said the final exchequer deficit was likely to be "minimal," assuming expenditure come in on target.

The rise in tax receipts pushed the government's total revenue 13.2 per cent higher to €19.9 billion while total expenditure was €18.2 billion versus €16.3 billion in the first half of last year, meaning that the current account surplus stood at €1.646 billion at the end of last month.

"These half year results confirm that the public finances are in a sound position," said Mr Cowen, whose December budget will be his last before elections in 2007.

"While these results are positive, it is important that we remain vigilant by maintaining fiscal policies that support our economic growth and competitiveness," he added.