Irish Economy 2014: Department of Finance data on Wednesday showed an Exchequer deficit at end of June at €4,94bn, an improvement of €1.65bn compared to the first half of 2013. Both total tax revenue of €18,47bn and the net voted expenditure outturn are slightly better than targets in Budget 2014. While tax revenues are about €500m ahead of target, the fall in the Live Register by 36,500 in the year to June has only had a €20m impact on the Social Protection budget.
Conall Mac Coille, chief economist at Davy, commented - - "Exchequer returns for June show the tax and spending arithmetic still looking better than expected heading into next year’s Budget.
Tax revenues continue to show strong growth and are approximately €500m ahead of target in the first half of 2014. Less favourably, current expenditure has overrun for the first time this year, led by problems in the Department of Health. That said, capital expenditure was €105m under budget.
The government finances are also benefitting to the tune of €222m in extra income from the Central Bank. Overall, the government deficit looks set to beat the 4.8% of GDP target set for 2014 to end close to our forecast for a 4.4% deficit this year. Overall, the exchequer balance is already around €1bn better than expected in H1 2014, approximately 0.6% of GDP – a fact that will be surely be seized upon as political cover to reduce this year Budget adjustment to around €1bn, below the €2bn originally planned. At face value, the revenue figures show deterioration in aggregate.
Income taxes (+€64m), value added tax (+€113m) and excise duties (+149m) are all showing strong growth and are ahead of target on the year. However, the Department of Finance has indicated that timing effects related to the Single European Payments Area (SEPA) delayed the collection of €250m of corporation tax receipts expected in June, but paid in early July. Once this timing effect is accounted for, tax revenues are about 2%, or €500m, ahead of target.
The underlying picture is that tax revenue growth remains robust and continues to beat expectations, suggesting buoyancy in the domestic economy. However, developments on the expenditure side are less favourable. In previous years a pattern has developed whereby tight expenditure discipline in most departments has compensated for persistent overspending in the Department of Health.
In H1 2014, health spending is already €200m, or 3%, over budget. Tighter controls on expenditure in Education and other departments have not been sufficient to offset the overrun in Health. Aggregate current spending is now over budget, albeit by only €10m. Moreover, spending in the Department of Social Protection is only marginally below expectations, by -0.2%, or €20m. It is surprising that greater savings on social spending have not been made. Live Register data (July 2nd) show the unemployment rate falling to 11.6% in June, far earlier than expected in Budget 2014. The Budget 2014 forecasts envisaged unemployment falling to 11.8% in 2015 and to 11.4% in 2016."
Peter Vale, tax
partner at Grant Thornton commented: "This is
yet another impressive set of figures, with tax receipts ahead of target and
spending largely under control. The consistently positive news on the jobs front
is translating into strong income tax receipts, 7.4% ahead of last year’s
figures, although there was a slight weakening in the figures for June. We also
know that people are spending more, reflected in strong VAT receipts, 7.3% ahead
of last year.
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