The Government moved quickly last night to damp down the clamour for a giveaway budget next month after new figures showed tax revenues so far this year almost €1 billion ahead of target.
Both Taoiseach Enda Kenny and Tánaiste Joan Burton signalled they will adopt a cautious approach in the coming weeks.
“These figures are obviously encouraging, but nothing will be done to jeopardise the recovery. These figures are evidence that the Government’s plan is working and it is our intention to continue to implement that plan,” said Mr Kenny’s spokesman.
Before the figures were released last evening, the Taoiseach had warned that the economic situation remains fragile. “We are not in a position to write large cheques,” he said in Sligo.
Although Ms Burton told reporters that the economy was in a “significantly better place” than could have been expected even one year ago, she said the Government must exercise care in its approach to the budget.
“I think we have to be very careful not to raise expectations unrealistically, but in fact to look to build on the economy’s strength so that we can provide for a sustainable prosperity and so that we can provide for fairness as well.”
With the Cabinet due to meet today for the first time since July, tax figures for August reflected strong income tax and VAT returns as economic growth accelerates. Total tax revenue came to €24.9 billion at the end of August, up 8.4 per cent on last year but also €971 million, or 4.1 per cent, ahead of the target set by the Department of Finance.
The figures prompted immediate demands for tax cuts when Minister for Finance Micheal Noonan unveils the budget on October 14th.
“There is now room for manoeuvre in budget 2015, meaningful income tax cuts and increased investment would stimulate the economy and would help it grow by 4 per cent next year,” said economist Fergal O’Brien of the business lobby Ibec. “We expect the trend of revenue growth to continue into the final quarter of the year and this would mean that little or no net fiscal adjustment will be needed on budget day.”
The Government’s basic position is that it will not threaten the long-term drive to restore the public finances by moving too quickly to cut taxes. It is accepted in Government circles that only a modest income tax decrease may be in prospect.
Ms Burton said any fiscal leeway next year would be targeted towards low and middle income earners and families.
In a statement, Mr Noonan acknowledged that the rate of fiscal retrenchment next year would be “significantly less” than the €2 billion forecast at the start of the year. In meetings next week with ranking European officials, Mr Noonan will press his case for Ireland to be allowed repay its IMF loans early.
The IMF is willing to allow such an arrangement, which could yield annual savings of €375 million.
However, unanimous agreement is required among euro zone states to unwind a binding provision in the 2010 bailout deal under which European loans must be repaid at the same time as IMF loans.
Mr Noonan meets EU economics commissioner Jyrki Katainen in Brussels on Monday. On Tuesday he meets ECB chief Mario Draghi, president of the euro group finance ministers Jeroen Dijsselbloem and chief of the European Stability Mechanism bailout fund, Klaus Regling.
