|Michael Noonan, Irish finance minister|
Irish Economy: The Exchequer deficit of €5.2bn in
the seven months to July represents an improvement of €798m on the Budget 2014
target, driven by increased tax receipts and reduced interest payments on the
national debt, according to data published Tuesday by the Department of Finance
The deficit was €5.15bn in 2013 but when one-off
transactions (the sale of Irish life and the sale of Bank of Ireland CoCos) are
excluded, the deficit of €5.2bn in 2014 has improved by €2.3bn when compared to
the same period last year. This is driven by increased tax revenues and lower
The DoF said total tax revenue of €22.38bn was
collected to end-July, an increase of €1.35bn (6.4%) on the same period last
year. In addition, cumulative tax revenues are €548m (2.5%) ahead of target.
With regards to the month of July, tax revenues were €327m (9.1%) above the
monthly target although this was flattered by delayed corporation receipts.
Income tax totalled €9.25bn to end-July, an
increase of €654m (7.6%) year-on-year and up €54m (0.6%) on target, "which is
reflective of the improving labour market as evidenced by recent Quarterly
National Household Survey and live register data."
VAT receipts for the year to date totalled
€7.11bn, up €242m (3.5%) on target and up €477m (7.2%) in year-on-year terms;
corporation tax receipts for the year to date of €2.12bn are down €21m (1.0%)
year-on-year but €69m (3.4%) above target. Corporation tax receipts for the
month are €252m (221.4%) above target due to receipts delayed from June as a
result of the SEPA payments system.
Overall spending (current + capital) to end-July
2014, at €24.17bn, is down €172m (0.7%) year-on-year and €73m (0.3%) below
Health spending is up €273m (3.9%) over target
and has been offset by underspends in most other Departments, particularly the
Department of Social Protection where spending is €121m (1.7%) lower than
The DoF said that total Exchequer debt serving
costs at end-July 2014 were €5.12bn a year-on-year decrease of €45m or 0.9%.
This reduction largely reflects timing factors. Interest expenditure - - the
largest component of debt servicing - - was 6.3% below the Budget 2014
consistent target at end-July 2014. This is primarily due to the December 2013
bond-buy back which resulted in lower interest expenditure in the early part of
2014, lower than expected costs from bond issuance so far this year and a
favourable rate reset on the floating rate bonds post-Budget last December.
End July Exchequer Statement
End July Tax Receipts
End July Net Voted Expenditure
End July Gross Voted Expenditure
Michael Noonan, finance minister, said:
“The Exchequer returns for the first seven months of 2014
show a strong performance in terms of both tax and expenditure. Cumulative
tax receipts are up €1.3bn compared to the same period in 2013. This is
further evidence that the recovery is taking hold across the economy.
If this pattern continues in the second half of the year the Budget
adjustment will be somewhat less than the €2bn originally planned.”
David McNamara, economist at Davy, commented:
"Tax revenues 2.5% ahead of target; spending discipline maintained:
Exchequer returns for July show both tax and spending better than expected at
the beginning of the year. Tax revenues were €548m (+2.5%) ahead of target in
the year to July compared to a €500m outperformance in June. On the expenditure
side, gross voted current expenditure was €66m (+0.2%) above expected levels,
but was again offset by a saving of €89m in gross voted capital expenditure. The
budgetary arithmetic has also benefited from better-than-expected non-tax
revenues this year, particularly the €222m extra income from the Central Bank.
In addition, lower debt interest payments have boosted the exchequer numbers.
Overall, the government looks set to easily beat the 4.8% deficit target for
this year, helped also by the recent upward revisions to the national accounts
(for further detail, see the latest issue of Davy Economic Monthly, ‘Ireland
heading for smaller Budget adjustment in 2015’, issued July 31st).
On the revenue side, all the main tax headings were ahead of target. Income
taxes (+€54m), VAT (+€242m) and excise duties (+€132m) are all showing strong
growth and are ahead of target. Corporation tax is now €69m ahead of target
compared to a €183m undershoot in June, with delayed June tax receipts flowing
into the exchequer during July.
Nevertheless, spending pressures remain. Health spending was €243m above
expectations in July, while Social Protection spending came in €4m above
expectations, despite the better-than-expected improvement in the labour market
this year. Gross voted capital spending, however, was €89m below target,
offsetting some of the overrun on the current spending side.
However, the key point on spending is that savings are largely coming from lower
debt interest – now €301m (-6.3%) below expectations at the start of the year.
So, savings on debt interest and stronger tax revenues should more than offset
departmental overruns by year-end."
Peter Vale, tax partner at Grant
Thornton, commented: "The latest set of positive tax figures will
give further support to those advocating little or no adjustment in October’s
budget. In particular, ongoing positive VAT numbers indicate that people are
continuing to spend, reflecting much of the positive data we have seen in recent
weeks and months. It’s reasonable to expect that people moving out of negative
equity has helped increase consumer confidence.
Taxpayers are likely to see some respite in their annual tax bills in the
budget, possibly through an increase in tax credits or a widening of the tax
bands. While any such adjustment will still leave tax payers considerably worse
off versus their position in 2007, a decrease in their monthly tax bill in the
region of €50 per month could be expected. In the background, the debate around
the future international tax landscape rumbles on. This is hugely significant
for Ireland and we can expect a statement on our future tax strategy in October.
This may be a commitment to continue our participation in the various global
talks but could also potentially see a more radical adjustment to our corporate
tax residence rules."