Tuesday 6 December 2016

Noonan has 'wriggle room' in Budget as tax €1.4bn ahead of target

Colm Kelpie and Eilish O'Regan

Published 03/09/2015 | 02:30

Finance Minister Michael Noonan said the latest data showed public finances were in a strong position ahead of Budget 2016
Finance Minister Michael Noonan said the latest data showed public finances were in a strong position ahead of Budget 2016

The tax take was more than half a billion euro better than expected last month, with large gains recorded in income tax, VAT and corporation tax.

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The taxman has collected about €1.4bn more than forecast so far this year, meaning the take for the entire year could end up close to €2bn healthier than thought in last October's Budget.

Exchequer returns for August show that the fall in unemployment and rising consumer demand are continuing to help boost the State's coffers.

In theory, the extra cash brought in via taxes could give the Government even more wriggle room in Budget 2016 - the last before the General Election - but also make it politically more difficult to dampen expectations.

Finance Minister Michael Noonan said the latest data showed public finances were in a strong position ahead of Budget 2016.

"Overall, the tax performance for the first eight months of 2015 is ahead of expectations, with a very strong performance across all the major tax heads," he said.

Impact

"The tax take is ahead of profile and is up by 10pc, or just under €2.5bn year-on-year. This is driven primarily by improvements in the underlying strength of the economy, job creation and the positive impact this is having on consumers and businesses."

Income tax, the single biggest source of taxation, at €11.22bn so far this year, was €146m, or 1.3pc better than targeted. VAT, at €7.96bn, was €107m ahead of predictions, or 1.4pc healthier.

This reflects the recovering labour market and improving consumer demand: as unemployment drops, confidence among consumers rises and households spend more.

On the spending side, overruns in health were offset by savings in other areas.

Experts are forecasting the economy could grow by over 5pc this year with the Department of Finance expecting the tax take could be almost €2bn higher than predicted by the end of the year.

"The particularly strong figures will undoubtedly result in even more calls for tax cuts and spending increases," said Peter Vale, tax partner with Grant Thornton. "Ironically, a more conservative set of numbers may have suited Mr Noonan more. In our view, next month's Budget will continue the trend set in recent Budgets, with a heavy focus on employment. Any tax cuts or new reliefs will be heavily weighted towards job creation."

David McNamara of Davy Stockbrokers said that, while it was a positive report, persistent overruns in health were a cause for concern.

Health Minister Leo Varadkar admitted yesterday that the HSE demand for an extra €2bn in funding next year was "unrealistic" - and he called on the agency to deliver better value for money in order to strengthen his hand.

The minister was responding to revelations - first disclosed in the Irish Independent - that the HSE has submitted financial demands for an extra €2bn in its allocation for 2016 to maintain services and deliver improvements.

"I fully accept the HSE's basic analysis that we need to restore spending back to levels of seven years ago," he told RTÉ's 'Morning Ireland'.

However, he said it was "not realistic to expect me to secure an extra €2bn next year in the health budget".

Irish Independent

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