A sharp increase in spending by the Government over the past year under the National Development Plan (NDP) has contributed to an Exchequer deficit of €1.4 billion for the first half of 2007.
The latest Exchequer returns show a 70 per cent surge in capital expenditure over the last 12 months. The Government has spent €2,422 million on capital projects so far this year, up €229 million on the €2,193 million it had planned to spend between January and the end of June.
Total spending by the Government increased by more than 20 per cent between June 2006 and June 2007, which was ahead of planned increases. But the Minister for Finance Brian Cowen said the Government was still on target to meet its budgeted deficit of €546 million for 2007.
Department of Finance officials said the implementation of key projects under the NDP had gathered momentum in the first half of the year, with three major road projects ahead of schedule.
Spending on NDP projects tends to be concentrated in the second half of the year but would be more evenly spread in 2007, according to Department of Finance official Ronnie Downes.
The Minister said tax receipts for the first six months were close to expectations, showing that the economy continued to perform well. Figures published yesterday by the Central Statistics Office showing that the economy grew by a rate of 7.5 per cent in the first quarter of 2007 confirmed this, he said.
But Opposition politicians questioned why the Minister had allowed an Exchequer surplus of €880 million this time last year to swing into a €1.4 billion deficit.
Pointing out that State current spending rose by 16 per cent in the first six months of the year, Fine Gael finance spokesman Richard Bruton said this was two and a half times the growth in tax revenue. For years now, he said, Fianna Fáil had allowed spending to grow at a pace far in excess of the growth in the economy. This approach was simply not sustainable, he said. Rejecting Taoiseach Bertie Ahern's claims that "only begrudgers" raised questions about the Irish economy, Mr Bruton said figures on tax revenues published yesterday revealed "worrying patterns".
He said that capital gains tax receipts in June were just half of the Department of Finance's projection, while receipts from stamp duty were down by 25 per cent in the month. Revenues from both of these taxes partly depended on the health of the property market. "Clearly if this pattern continues, the end year deficit will be substantially worse than that forecast by Government only a few short months ago," he said.
Labour Party spokeswoman on finance Joan Burton said the Minister must produce a solid forecast about stamp duty income or otherwise face the danger that monthly returns would continually destabilise the housing market.
Revenue from stamp duty, excise duties and capital gains tax were all below target for the first six months of this year, according to the latest Exchequer returns. But revenues from VAT and income tax were close to their targets, while the corporation tax yield increased strongly, leaving overall tax revenues just 0.6 per cent below target. Lower than expected car sales and a 4 per cent fall in tobacco sales meant excise duties came in €145 million below target.
The Government has budgeted for a 19 per cent increase in capital spending this year as key NDP projects in transport, the environment and education were given the go ahead. It plans to spend €7.5 billion this year.
Mr Cowen said it was important that the adjustment in the housing market was "properly handled through an increase in the public capital programme" that would keep up job numbers.
But the Economic and Social Research Institute said on Monday that construction work carried out under the NDP would not be enough to compensate for the loss of jobs in the housing market. Its forecast is that the public finances will end 2007 in a deficit of €622 million.