The Exchequer figures point to a better-than-expected outturn in the Government's finances for the first three months of the year. A surplus of €880 million is recorded, more than three times the surplus recorded in the first quarter of last year. However, the figures are not indicative of the likely outcome for the full year and they suggest that consumer spending, despite Central Bank warnings, continues to grow strongly.
The Exchequer returns reveal that tax revenue, at €9.2 billion, was €221 million ahead of the forecast figure. The largest component of this overshoot occurred in VAT receipts which were some €139 million higher. This indicates that spending on consumer goods and on cars continues to power ahead. The fact that stamp duty brought in €38 million more than anticipated also indicates that the same applies to property sales.
The level of Government spending in the first quarter was €438 million less than expected. Department of Finance officials were quick to point out, however, that the underspend can be attributed to timing factors in the financial year. Perhaps of more consequence is the level of income-tax receipts, which are €12 million less than expected. This shortfall must be seen in context: it amounts to just 0.5 per cent of total income-tax receipts. But it occurs at a time of rapidly-growing employment. The latest Fás study shows that the number of jobs in the economy rose by 65,200 last year to just under 1.9 million, the largest year-on-year increase in four years. Obviously many of the jobs must fall into the low-paid category. And the outlook for income tax receipts is also uncertain because the economy is now close to full employment so job growth can be expected to cool down.
The European Commission's Spring Economic Forecasts, also issued yesterday, predict that our GDP will grow by 4.9 per cent this year and 5.1 per cent next year. This compares very favourably with a growth forecast for the 12-member euro zone as a whole of just 1.6 per cent; only the Baltic countries will outperform us.
But the rosy economic outlook can only last for as long as the economic fundamentals remain favourable. Irish exporters are already suffering from the rise in the value of the euro and consumers are feeling the pain of higher oil prices. Consumer spending is indeed strong but that is mostly because interest rates are so low. If interest rates rise, borrowers may find their debt servicing costs climbing faster than their incomes. The Central Bank would do well to remind the heavier borrowers of the risks involved.