State is on course for balanced budget ahead of its 2019 target
Published 06/08/2015 | 02:30
A balanced budget could be on the cards ahead of the 2019 target after new figures showed that the State's finances are in increasingly good shape.
The closely watched Exchequer deficit fell to €647.5m in the first seven months of the year, marking a radical improvement compared with last year.
The latest figures mean that the country is on course to beat European budget rules without any new taxes and ahead of schedule, despite the latest Irish Water debacle.
The Government had forecast that the deficit would fall to 2.3pc this year and there would be a balanced budget - where income at least matches spending - by 2019. But these are now likely to be revised, with new targets to be announced on Budget Day in October.
The deficit measures the difference between public spending and what the Government takes in through tax and other income. It is a key gauge of financial sustainability.
In the seven months to the end of July, the deficit fell to €647.5m or around €92m a month.
That is radically lower than the €5.18bn overspend in the same period last year, which worked out at €738m a month.
The Government borrows to meet the shortfall, so cutting the deficit is crucial in lowering the national debt.
The latest data show overall tax receipts this year around 10pc up on last year and 3.8pc higher than the Government's own forecasts.
Tax income is up generally across the board, but the new figures show an especially sharp rise of 36.7pc in the amount of corporate tax, which is paid on business profits.
Corporate taxes of €2.9bn paid in the first seven months of 2015 are €778m up on last year.
The biggest single contributor to the State coffers remains income tax, including the universal social charge (USC), which together account for €9.763bn of the total of €24.5bn raised so far this year.
Heavy dependence on personal taxation leaves less scope for cuts in the upcoming Budget, according to tax accountant Peter Vale.
"Ideally, income tax would make up a smaller percentage of the overall tax take. This is generally seen as leading to more sustainable economic growth.
"We can expect some measures to address this in October's Budget, with a decrease in effective tax rates for lower- and middle-income earners in particular. It looks like top earners will be stuck with high marginal tax rates, which continue to act as a disincentive to the creation of employment," he said.
Overall, the Exchequer data showed positive momentum continued into the second half of the year, said Mr Vale. The pick-up in corporation tax, much of it paid by multinationals, highlights the importance of Ireland retaining its attractiveness as a business base, which is under threat, he added.