Minister for Public Expenditure Brendan Howlin has insisted to Cabinet colleagues that the maximum increase in spending next year will be €600 million as talks on Budget 2015 move into their closing stages.
New exchequer returns yesterday show income tax and corporate tax receipts dropped below target last month, but the cumulative tax yield since the start of the year is still ahead of forecast.
The figures were examined last night at the Economic Management Council, the powerful Cabinet subcommittee at which Taoiseach Enda Kenny and Tánaiste Joan Burton settle the central thrust of fiscal policy with Minister for Finance Michael Noonan and Mr Howlin.
Ministers are working on the basis that the net tax take remains on track to come in more than €900 million above target by the end of the year.
However, delayed receipts from the levy on private pension funds meant revenues exceeded the official projection by €703 million at the end of September. The same figures at the end of August were almost €1 billion ahead of target. The latest data comes amid persistent pressure from Ministers for increased health, education and justice expenditure next year.
Although Mr Howlin indicated a fortnight ago that there might be scope to increase spending by some €600 million in 2015, many Ministers believe there will be scope to go beyond that by the time the budget is unveiled on October 14th.
At Cabinet last Tuesday, however, Mr Howlin held the line and said again that Ministers would have to curtail their spending demands. Political sources said he was adamant a €600 million increase would be allowed in a best-case scenario, but no more than that.
The latest figures show that health spending overruns continue. But with unemployment at its lowest level since early 2009, an underspend in the Department of Social Protection is expected to put pressure on Ms Burton to accept a budget cut next year.
Crucial returns
The September tax returns are crucial as they are the final set of official figures before the budget is settled. Although VAT and excise returns point to increased consumer spending, there was some concern in political circles that corporation tax receipts last month came in 19 per cent below forecast.
It is understood that the Cabinet has yet to discuss the parameters of a modest income tax cut next year. The latest indications from political sources suggest the focus right now is on a cut in the universal social charge and, possibly, an increase in the income bands at which the 41 per cent income tax rate kicks in.
However, an increase in tax bands is thought to be the least favoured option as they are perceived to be difficult to communicate politically. Ministers are keen, however, to concentrate the benefit of any modest tax concession on middle-income earners.
“Overall, the exchequer performance in the first nine months of 2014 is evidence of the significant progress that has been made in stabilising and growing the economy and creating jobs,” Mr Noonan said yesterday. “Nevertheless, it remains the case that we still have a deficit in our public finances, that we must continue to be vigilant and disciplined in our management of the public finances.”
