Government budget aims on target but pressures remain
The latest exchequer figures show the Government is broadly in line to meet year end budget deficit targets but the overall economy is still under pressure.
The budget deficit for the first six months of the year stood at €10.8bn, and excluding bank related payments, was up by over €1bn.
Tax receipts in the period to end-June, stood at €15.3bn, almost 6pc above the same period last year - following three years of consecutive drops.
However, taxes were slightly below expectations with a shortfall of 0.7pc or €115 but this is against a target of almost €15.5bn in total.
“The exchequer deficit.......is in line with my departments expectations at this point of the year,” said Finance Minister Michael Noonan and Reform Minister Brendan Howlin.
The end-June exchequer primary balance target set as part of the joint EU/IMF programme of financial support was also met, which is to be welcomed,” they said.
Under that €67.5bn loan agreement, the Government’s target is 10pc of Gross Domestic Product (GDP), or output, by year end while the 2014 aim is 3pc.
But many analysts believe that the more realistic figure is 10.5pc, or slightly higher for year end, while the 3pc deadline is unlikely until after 2015/2016 at the earliest.
And while the figures for the first six months are broadly positive, they have to be taken in the context of continued pressure on the euro, the Greek bailout and the strains on other European economies like Portugal and Spain.
Economists have also highlighted the problems with our two-tier economy – while exports are driving growth, the domestic economy, including unemployment levels and retail sales, continue to drag.
On the plus side, though, the Government will also be hopeful that recent VAT cuts for the retail sector will pay off as will the recent visits of President Barack Obama and Queen Elizabeth II boost tourism.
The exchequer figures also showed that different taxes varied in the period.
Income tax is in line with targets due to the introduction of the Universal Service Charge and other budgetary measures while corporation tax and VAT were weaker than expected.
Despite this weakness in some taxes, the Ministers said the Budget day target for tax revenue in 2011 of €34.9bn remains achievable, especially when contributions from the pension levy introduced to fund the jobs initiative kick in.
Economists said that while the figures will encourage the Government to believe it can meet the deficit target for 2011, a number of taxes, including VAT, are running below target, despite the recent reductions for some services.
“But we are still worried about the overall weakness in domestic demand, and are forecasting an exchequer deficit of €18.6bn,” said Alan McQuaid, chief economist at Bloxham Stockbrokers.