The surplus on the Government's finances could be as high as £4.5 billion at the end of this year, according to official returns from the Department of Finance.
The figures show that the economy continues to grow exceptionally strongly. This is leading to unprecedented buoyancy in the Exchequer finances, with official forecasters now predicting a surplus of spending over revenue of £1.7 billion for the year, before substantial privatisation receipts which will leave the overall surplus much higher.
According to the Exchequer returns for the first six months, published yesterday, tax revenue is still growing extremely quickly, a trend which will leave the Government room to fund whatever projects it chooses in the forthcoming National Development Plan, as well as room for substantial tax cuts in December's Budget.
The stronger-than-expected figures mean the economy is growing more rapidly than predicted and, according to the Department, it will be revising its growth forecasts upwards later this month. It may increase its Gross Domestic Product growth forecast by half to three quarters of a percentage point to perhaps 7.5 per cent.
Tax revenue is now expected to be some £750 million above the target the Minister for Finance set on Budget day last year. As a result, the Department is predicting the overall surplus of revenue over spending will be some £1.7 billion at the end of the year, not taking privatisation receipts into account.
This compares with a target of just £950 million on Budget day. Consequently, the surplus is expected to be 3 per cent of national income compared with a budget target of 1.7 per cent.
The Exchequer is also due for a financial windfall from the sale of Telecom Eireann and the ACC/ TSB privatisation.
According to Dr Dan McLaughlin, chief economist at ABN AMRO, this is likely to mean an overall surplus of some £4.5 billion at the end of the year. That is after a likely £1 billion payment to the Telecom and An Post pension schemes to discharge outstanding Exchequer liabilities.
At the end of June, the Exchequer's finances showed a surplus of revenue over spending of £2 billion.
But according to the Department of Finance assistant secretary, Mr Michael Tutty, the second half of the year always brings a deficit. In addition, the Budget tax package of £581 million for this year will slow receipts further.
Nevertheless, tax receipts are running at 17.5 per cent above last year in the first half compared with a Budget estimate of 7.5 per cent. To meet the Department's new target, they would have to slow down to a 12 per cent growth rate.
Tax revenue was up across the board and well ahead of Budget expectations. Income tax is up some 10.7 per cent, VAT up 16.1 per cent, excise duties 13.9 per cent and stamp duties 26.2 per cent, mostly reflecting growing residential property prices. Corporation tax was 37.6 per cent ahead compared with the same period last year. In fact, it is only £400 million away from meeting the full-year target after six months. According to Dr McLaughlin, it is likely to reach this in the next couple of months. Capital taxes are also up some 34 per cent.
Spending was in line with Budget expectations. But according to Mr Colin Hunt, chief economist at Goodbody Stockbrokers, day-today spending growth of more than 10 per cent is too high for such a quickly growing economy, given the large savings from unemployment falling so rapidly.
According to the Department, there is pressure in areas such as health, where the nurses are currently in the Labour Court. There are also pressures coming from education as well as Garda and prison officer overtime bills. The pay bill already has an additional £100 million and more has been put aside to settle the nurses dispute and phase two of the Garda demands, although the Department refused to say how much.
Capital spending is some £115 million ahead of target, mostly due to the higher than expected costs of the Telecom flotation and the money to be spent on Farmleigh House. Mr Tutty pointed out that capital spending had grown by some 66 per cent over the last three years
In a prepared statement, the Minister for Finance, Mr McCreevy said the budget position put us in a good position to absorb the reduction in EU receipts over the coming years and to meet the infrastructure and other challenges through the National Development Plan, which is currently being prepared. "Likewise it equips us to prepare to deal with the major long-term costs associated with the progressive ageing of the population."
