A pick-up in income tax receipts last month has boosted the Exchequer finances. New figures show that income tax is now running 19.4 per cent ahead of last year, providing clear indications of a continued revival in economic growth.
The Exchequer recorded a deficit of spending over revenue of €1.34 billion in the first four months of the year, compared to a shortfall of €1.74 billion in the same period last year, according to the figures published yesterday. Government spending has picked up and is now running almost 6 per cent ahead of last year.
However, the main focus remains on taxation, with total revenues in the first four months of €9.87 billion, up a strong 16.7 per cent on the same period last year.
With taxes running more than €500 million ahead of target in the first four months and spending under control, market analysts feel that the Minister for Finance, Mr McCreevy, will undershoot his budget borrowing targets.
Capital gains tax receipts remain exceptionally strong and have brought in €220 million more than expected in the first four months. This reflects strong sale of assets, likely to include investment properties and shares.
The latest data also showed a strong spurt in income tax in April, with revenues exceeding €3 billion in the first four months. Buoyancy in this area is particularly significant, as income tax revenues were sluggish last year and a pick-up indicates a general recovery in the labour market. The benchmarking pay increases for public servants are also likely to have been a factor.
In other tax categories, stamp duty remains ahead of target, mainly due to the buoyant housing market, corporation tax is up almost 30 per cent on last year and is broadly on target, and VAT is also in line with expectations.
The deficit recorded for the first four months follows a small surplus of €272 million in the first quarter. However the swing into the red appears largely related to timing factors - including some national debt payments - and economists believe that Mr McCreevy is on target to undershoot significantly his €2.8 billion Exchequer borrowing target.
Labour's Ms Joan Burton said the figures reflected "a lethal cocktail of damaging cuts in social services, a slowdown in the delivery of important infrastructural developments, and the shameless imposition of additional taxation on PAYE workers".
Economic commentators said the budget assumptions were proving too conservative. Mr Jim Power, economist with Friends First, said that the figures were consistent with a "gradual rather than strong economic recovery".
At Bank of Ireland Global Markets, Dr Dan McLaughlin said the figures were good news for the Exchequer and the economy. He predicts that the Exchequer borrowing target for the year could be undershot by €1 billion.
