Wednesday 29 March 2017

Tax take will fund once-off 'goodies' ahead of election

Brendan Howlin, Minister for Public Expenditure and Reform, during the presentation of the
latest Exchequer Returns at the Department of Finance Photo: Frank McGrath
Brendan Howlin, Minister for Public Expenditure and Reform, during the presentation of the latest Exchequer Returns at the Department of Finance Photo: Frank McGrath

Daniel McConnell and Colm Kelpie

The Government plans to fund once-off 'goodies' ahead of the General Election, using some of the €2.5bn in extra tax revenues expected by the end of the year.

Much better-than-expected tax revenues are set to spark a raft of additional supplementary estimates or budget top-ups from Cabinet ministers.

Because of strict European rules, Finance Minister Michael Noonan and Public Expenditure Minister Brendan Howlin cannot use the bonanza in tax revenues in the formation of next year's Budget.

However, any money spent this year is permitted without it impinging on the €1.5bn limit on additional spending for 2016.

So, Mr Howlin can give additional money to his ministerial colleagues this year to fund "once-off" exceptional items and not impact on the €1.5bn limit.

The Government will also use the additional revenues to pay down the National Debt, which is expected to fall below the milestone of 100pc of GDP.

"Yeah, the pressure will be on to ensure the money is spent, so we expect a number of supplementary estimates to come this year," said one senior Government figure.

Among the items being spoken about are the modular housing scheme to address the Dublin housing crisis, €600m for Leo Varadkar's supplementary estimate for Health by year end, additional resources to deal with rural crime and Tánaiste Joan Burton's Christmas bonus restoration.

The tax take for the first nine months of the year is €1.74bn bigger than had been expected, the latest Exchequer Returns show, driven by an extremely strong performance in corporation tax.

With just two weeks to go until the Budget, the total tax take so far this year is €31.6bn - 5.8pc stronger than projections.

Given the good news, Mr Noonan was asked about his view as to when the General Election would take place.

He said that there were two possible windows as to when it could happen.

"There are two windows as to when there will be an election, now and Christmas, and after Christmas. The Taoiseach will decide," he said.

This was seen as the most significant signal to date from a senior minister that an election this side of Christmas is possible. Fine Gael sources have previously indicated that Mr Noonan favours going to the country this year.

Ministers have meanwhile begun their one-to-one negotiations with Mr Howlin over their budgets for next year.

Mr Howlin hailed the Exchequer Returns figures as significant in the context of where the country was when this Government came to office.

"We would have given our right arm for a growth rate of 6.2pc a couple of years ago," he said.

On the spending side, Mr Howlin said most Government departments were on profile, with the exception of Health and Foreign Affairs, but this was because of additional money being allocated for the migrant crisis in the Mediterranean.

Income tax is 1pc, or €118m, better than expected for the year to date, while VAT is 2.3pc, or €222m, stronger.

Corporation tax is a massive 44.2pc, or €1.21bn, ahead of target for the year so far.

On a monthly basis, corporation tax receipts have helped push the overall tax take ahead of target, but income tax is €27m below target, while VAT is €115m over. Monthly data, however, can be volatile.

Spending discipline is being maintained, but there are over-runs in health and social protection of €325m and €143m respectively.

Davy Stockbrokers said the figures will heap pressure on Mr Noonan for a bigger expansion than the planned €1.5bn limit.

But Mr Noonan said: "Boom and bust policies have wrecked the economy three times in my political life and we won't do it again."

USC accounted for fifth of income tax

The controversial Universal Social Charge (USC) accounted for a fifth of the income tax take  last year, the Central Bank has said.

And at the end of last year, income tax accounted for 40pc of the total tax revenue - up from 26pc in 2007 - thanks in large part to the USC imposed at the height of the crisis.

By the end of last year, income tax was the sole tax head to have surpassed its pre-crisis level.

That's the assessment from the Central Bank in a paper focusing on the financial crisis and government revenues.

The study, published in conjunction with the Central Bank's quarterly bulletin, found that the recovery in revenues has been driven by developments in income tax.

The report shows that the introduction of the USC in 2010 has been largely responsible.

"Data from the Revenue Commissioners reveals that the USC was responsible for 20pc of the €17bn of income tax generated in 2014, and almost 40pc of the increase between 2010 and 2014," the Central Bank report noted.

Meanwhile, the Central Bank revised up its growth forecasts for this year and next year, while arguing that the economy doesn't need any stimulus.

Central Bank chief economist Gabriel Fagan said better-than-expected revenues should be used to pay down debt faster.

Colm Kelpie

Irish Independent

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