Exchequer returns released yesterday show the Government's overall financial position continuing to exceed Budget-day targets. Shortfalls in spending on infrastructure as well as continued tax buoyancy were cited by the Department of Finance as key contributing factors. Marc Coleman, Economics Editor, reports
The Exchequer deficit for the year to June stands at €594 million. This compares with a projected deficit of just under €3 billion for the full year. The figures suggest that the Government will have considerable room for manoeuvre in framing its next budget in the autumn.
"The results to the end of the second quarter indicate that the public finances remain on course," said Minister for Finance Brian Cowen yesterday in a statement accompanying the end to June 2005 Exchequer returns.
However, Mr Cowen committed himself to "sound public finances" saying they were the basis for sustainable growth. Current revenues in the first half of the year exceeded day-to-day spending by €1,186 million but this was offset by a deficit of €1,780 million for expenditure on infrastructure.
Current expenditure is modestly below target for the first six months of the year. The surplus on day-to- day expenditure corresponds to a planned surplus of €4,092 million for the year as a whole. Net current expenditure is 8 per cent up on the same period of 2004, compared with a projected increase of 11 per cent for the full year.
The shortfall in capital expenditure is more stark. The Government predicted on Budget day that capital expenditure would exceed corresponding revenues by €7,080 million. But capital expenditure was 13 per cent below target for the first half of the year, contributing to a relatively lower mid-year deficit.
Reform of capital spending rules now permit some money left unspent in 2004 to be carried forward and when this is accounted for capital expenditure increased by 2 per cent. But this is still considerably below the increase of over 12 per cent targeted for the full year as a whole. This contributes significantly to the better than expected headline Exchequer result.
Tax revenue, at €17,239 million, is €320 million ahead of target as strong performance under the VAT, excise duty and stamp duties offset disappointing out-turns for income taxes and corporation tax.
According to department officials, growth in demand for cars as well as stronger revenue from tobacco sales were the reasons VAT and excise duty revenues came in ahead of target.
Income tax receipts were as expected but were lower than for the same period of 2004. Corporation tax receipts were lower on both a year-on-year comparison and when compared with budgetary projections.
The department said the latest figures do not reflect forthcoming Government obligations under the scheme to reimburse those affected by nursing home charges. The department warned of a negative impact on the final budgetary outturn but declined to put a precise figure on the cost. Officials also said revenues arising from special investigations into tax fraud may exceed expectations, partly offsetting the cost of the nursing home scheme.
Labour Party spokeswoman on finance Joan Burton reacted to the figures by criticising the Government for underspending on infrastructure projects. She said that this would adversely affect Ireland's future competitiveness.
"Poor project management is continuing to leave capital spending lagging, behind targets," she said.
Richard Bruton the Fine Gael spokesman on finance said the figures highlighted the growing share of total tax revenue accounted for by taxes on cars and houses and pointed in particular to the contribution of stamp duties to the performance of tax revenues this year.
"The unfair structure of the stamp duty code is a major factor behind the huge gains to the Government this year," he said.