The Government is well on track to exceed its fiscal target after new data showed it collected €545 million more tax than anticipated in the first three months of the year.
Another strong set of exchequer returns prompted immediate claims in the business community that the scope for a further round of tax cuts next year is widening.
The returns point to big increases in income tax revenues, VAT payments and in the amount of tax collected from stock market and property transactions. As unemployment declines, the returns also reflect a €185 million or 6.2 per cent reduction in welfare expenditure.
While these improvements reflect the advancing recovery and increased consumer spending, the Government is seeking to damp down expectations of a giveaway in its final budget later this year.
The returns for the opening quarter of 2015 come weeks ahead of the “spring economic statement”, in which Fine Gael and Labour will set out their medium-term plan for tax and fiscal policy.
Growth forecast
Although the Government is greatly encouraged by advancing recovery in tax revenues, it is reluctant to upgrade in its growth forecast for 2015.
If there is any increase in the current forecast for a 3.9 per cent expansion in economic output this year, high-level sources indicated it would be modest.
The October budget was intended to deliver a budget deficit this year of 2.7 per cent of GDP, below the 3 per cent EU limit for the first time since the crash. At a briefing yesterday, Department of Finance official John Palmer said: “We’re very confident of hitting the target.”
The State collected €10.47 billion in tax in the first three months, €1.24 billion more than in the same period in 2014 and 5.5 per cent ahead of target.
The budget deficit in the period – when a large exceptional item was excluded – came in at €1.44 billion, down from €2.3 billion one year ago.
“Overall, the tax performance for the first quarter of the year is ahead of expectations,” said Minister for Finance Michael Noonan. The main tax heads all showed significant year-on-year growth, he added. “The €302 million increase in income tax collected on the same period last year is real evidence of the number of jobs being created. This has been achieved despite the reductions in income tax and USC which I introduced in budget 2015.”
Flexibility
Ian Talbot, chief of the Chambers Ireland business group, said the data provided “further evidence that Government now have flexibility for constructive and meaningful reductions in taxation to put money back in people’s pockets”.
Mr Talbot added: “This will also reduce pressure on businesses to increase wages, thereby continuing to maintain our competitiveness.”
VAT collections, which reflect consumer spending, reached €3.8 billion in the quarter, an increase of €431 million, or 12.8 per cent, on the same period last year. Monthly VAT receipts in March were €16 million, or 1.1 per cent above profile. Corporation tax receipts stood at €555 million, up €299 million year-on-year and €257 million above target. Exchequer debt servicing costs reached €2.06 billion in the first quarter, an actual increase of €83 million over 2014.
“Interest expenditure at end-March 2015, at €2.02 billion, was €89 million (4.2 per cent) below profile, primarily due to lower than expected bond issuance costs this year,” the Department of Finance said.
