The prospect of a balanced budget in 2017 opens the way for a boost to the State’s capital investment plans in the term of the next government.
The final exchequer figures for 2015, published yesterday, showed that the exchequer came close to balance in cash terms last year, significantly improving the outlook for the public finances for this year and next.
A big rise in tax receipts and once-off returns from Allied Irish Banks and Permanent TSB helped to deliver a budget deficit of just €62 million in headline terms last year, well below the €8.2 billion deficit in 2014.
Minister for Finance Michael Noonan said a cash surplus was now likely in 2016 after more receipts were received from AIB. However the State will still run a deficit this year because once-off items cannot be used to cut the general government deficit, the key EU borrowing measure.
Even excluding once-off factors, borrowing could now be eliminated by 2017.
“We had committed in the original spring statement last year to a balanced budget in 2018, it looks as if we’ll balance in 2017 now, which is a very big advance in the position,” Mr Noonan said.
“The growing engine of the economy will allow us to spend more money on the services and quite clearly they need it. The sequence is you get your economy growing first. That generates resources. If you kill the growth in the economy, you just won’t have the resources to do it.”
Under EU budget rules, the State will have scope to allocate more resources to investment spending, once annual borrowing is eliminated.
Mr Noonan was speaking after figures showed the tax collection reached €45.6 billion in 2015, up €4.32 billion on 2014 and €3.3 billion more than the forecast at the start of 2015. The existing budget forecasts assume the State will collect €47.2 billion in tax in 2016 but Mr Noonan pointed to the likelihood of a higher return.
“I wouldn’t be surprised if the tax take next year again exceeds the target.”
“Truly remarkable”
Minister for Public Expenditure Brendan Howlin said the figures were “truly remarkable” . He also said they provided scope for an earlier review of the existing capital programme and showed how the reduction in borrowing had been much more rapid than assumed.
“There were real concerns that the task we set ourselves – of having a deficit of less than 3 per cent of GDP by 2015 – was an impossible target to achieve,” he said.
According to the Department of Finance, the 2015 deficit was €5.2 billion lower than in 2014, when once-off items are excluded. These transactions included the redemption of AIB preference shares, which yielded €1.6 billion, and the sale of shares and debt in Permanent TSB, which yielded €500 million.
The figures were boosted by particularly strong corporation tax returns, which rose 49 per cent in 2015 to reach €6.9 billion. The Government expects to collect €6.6 billion in corporate tax this year.
Mr Noonan rejected the notion that the Government had built the budget on a base of once-off taxation. “That’s not true,” he said.
“We’ve already built in a buffer in terms of a declining corporation tax take, even though we don’t think it will decline very much.”
Increased receipts
The data also show strong income tax returns as employment rises and increased receipts from value added tax, which reflects the revival in consumer spending.
The figures were pretty good, Mr Noonan said. “When you take it into account that we’re due another €1.7 billion from AIB next July, it’s quite clear that not only will we balance next year, but we’ll probably be in surplus in cash terms.” The €1.7 billion is from the repayment of contingent capital notes which mature next summer. The exchequer could get further cash from AIB if the planned flotation goes ahead.
The end-of-2015 returns bring the budget deficit close to 1.5 per cent of gross domestic product – well below the original 2.7 per cent target for 2015, which itself was revised down to 2.1 per cent last October.