The Irish Exchequer deficit at end-2014 was at €8.8bn compared to €11.5bn in the same period last year - the deficit was an improvement of €1.4m on the Budget target, driven by increases in tax and non-tax revenues including Central Bank dividends and reduced interest expenditure. Meanwhile the budget deficit based on EU calculations, which will be released next April, has been estimated at about 4% of GDP (gross domestic expenditure).
Total tax revenue of €41.3bn was collected during 2014, an increase of €3.5bn (9.2%) on the previous year. In addition, cumulative tax revenues are €1.2bn (3.1%) ahead of target. Tax receipts in December were €114m (3.8%) above the monthly target and up €500m (19.1%) when compared to the same month last year.
Income tax totalled €17.2bn for the year, an increase of €1.4bn (8.9%) year-on-year and up €112m (0.7%) on target. For the month of December, income tax receipts of €1.4bn were broadly on target (€9m shortfall) and up €113m year-on-year.
VAT receipts for the year totalled €11.1bn, up €413m (3.8%) on target and up €817m (7.9%) in year-on-year terms. December was a non-due month and VAT receipts for the month were €100m (43.6%) above target.
Corporation tax receipts for the year of €4.6bn, up €344m (8.1%) year-on-year and €235m (5.4%) above target. Corporation tax receipts for the month of December at €430m were up €25m (6.3%) against target.
Excise duties, at €5.0bn for the year, were up €100m (2.0%) year-on-year and also up €176m (3.7%) against target. In December, excise receipts were €69m (13.8%) below the monthly target.
Cumulative Stamp Duties at €1.7bn, were up €347m (25.9%) year-on-year and up €211m (14.3%) on target, driven by the increased number of property transactions and receipts from the pension levy.
Local Property Tax (LPT) receipts of €491m were collected in the year, which was €58m (10.6%) below target.
Taken together, the remaining smaller tax-heads – Customs, CGT and CAT – are up €295m (33.0%) year-on-year and €152m (14.7%) above target. This is wholly attributable to the performance of CGT.
Non-tax revenues, at €3.0bn are up €290m (10.8%) in year-on-year terms. This is driven by increased dividends and the transfer of €520m of motor tax receipts, as a result of the restructuring of local government funding.
Overall Net voted expenditure for the year, at €42.2bn was €841m (2.0%) above target. In comparison to 2013, net voted expenditure was down €848m (2.0%).
Total Exchequer debt servicing costs for 2014 were €8.2bn, a year-on-year increase of €122m or 1.5%. Interest expenditure – the largest component of debt servicing – was 8.4% below the original Budget 2014 forecast.
David McNamara, economist at Davy, commented: "While the final general government deficit will not be released until April, we expect that it will be in line with the 3.7% forecast in October’s Budget. At that time, items that feed into the government deficit were €1.23bn ahead of target, versus €1.12bn currently. That said, because of adjustments for local authorities, interest accruals, the NPRF and other items, the final out-turn for the government deficit in 2014 remains uncertain.
Tax revenues finished the year 7.8% ahead of 2013 and 2.7% (€1.4bn) ahead of target. Income tax receipts were up 8.9% on the year and 0.7% (€112bn) above target, reflecting the continued improvement in the labour market. VAT was up 7.9% year-on-year and 3.8% (€413m) above target while corporation taxes were up 8.1% year-on-year and 5.4% (€235m) above target.
However, the spending out-turn is worrying. Current voted spending overruns deteriorated over the month and are now 1.6% (€807m) above target, albeit still down 1.3% year-on-year. This compares to a €475m over-run in the year to November and takes some of the gloss off an otherwise positive release. Health spending finished the year €584m above target, while Social Protection was €127m above target despite the significant fall in numbers on the Live Register. Gross voted capital expenditure came in €210m (+6.3%) above expectations, largely driven by a €160m overspend in transport, while a €461m capital contribution to Irish Water meant that the deficit outperformance slipped over the month to €1.1bn from €1.7bn in the year to November."
Dermot O'Leary, chief economist at Goodbody, commented: "The purse strings were loosened somewhat at the end of the year, leading to a budget deficit in 2014 that was slightly higher than expected at the time of the Budget last October. There is thus less wriggle room for the government than previously thought, but the strong economic momentum should still lead to a deficit below 3% of GDP in 2015.
Budget deficit estimated at 3.9% of GDP in 2014
Having looked like coming in at close to 3.5% of GDP as recently as October, it is now estimated that the Irish budget deficit amounted to 3.9% of GDP in 2014. While this will not be confirmed until April, this is the conclusion of the final Exchequer returns data published by the Department of Finance yesterday. While the beat relative to the initial government estimates (4.8%) is still significant, it appears that there was a sizable increase in spending in the final two months of the year, possibly reflecting some front-loading of expenditure in the knowledge that the deficit was going to come in well inside expectations in any case.
Significant outperformance from tax revenues…
Counting solely general government items, the deficit fell by €4.9bn in 2014 to €8.1bn. This represents an outperformance of €1.1bn relative to expectations. However, the outperformance was €1.7bn in the first ten months of the year. For the full year, government revenues were €2.1bn better than expectations, but expenditure ended the year €1bn ahead.
…while spending prudence slipped at the end of the year
Although total expenditure still fell by 1.4% in 2014, there was a significant slippage in spending prudence at year-end. Some of this overspend can be put down to one-off items, while overspend in some departments is some cause for concern. Spending on health ended the year €600m ahead of expectations, while spending on social protection was also ahead of expectations (by €127m), despite the unemployment rate coming in well below initial expectations. There was a ramp-up in capital spending at the end of the year, which is not a concern. Some of this was due to extra payments to Irish Water (€461m). Expenditure would have been higher were it not for the large underspend on interest expenditure.
Strong momentum in tax revenues to continue
The good performance of tax revenues continued throughout 2014, with December being no different. Tax revenues were up 9.2% in 2014 and were €1.2bn ahead of original expectations. The overshoot was broad-based, with VAT (€413m), corporation tax (€235m), stamp duties (€211m) and excise (€176m) all contributing. Given the strength of the economy, we can expect the momentum in tax revenues to continue into 2015.
Spending discipline must continue
While there has been significant progress in deficit reduction over recent years, there is still some work to do to reach the target of a structural balance by 2018. To do this, spending prudence must accompany strong tax revenues due to the economic recovery. With policymakers clamouring to promise a whole host of fiscal measures, a pre-election drive risks putting this spending discipline to the side."