No slowdown in boom economy

No slowdown in boom economy





Latest Exchequer figures on target as consumer confidence remains high

THE ECONOMY is still booming and consumer confidence remains high, according to the half-year Exchequer figures to be published today.

There is still no sign of a slowdown in economic activity and receipts under almost all headings are either on target or just ahead.

While a deficit of just under €600m was recorded in the six months until the end of June, it still looks as though the figures for the end of the year will be well ahead of the target, which was for a budgeted deficit of €2,988m for 2005 as a whole.

The healthy outlook will come as a boost to the Government as its heads into the summer recess and tries to rebuild public confidence after a difficult first half of the year, during which it was beset by a series of problems, ranging from nursing home controversies to opposition claims of waste of public money and delays in delivering infrastructural projects.

Across a range of headings, the Exchequer figures will show that receipts are holding up well, with only Corporation Tax - where the "take" normally increases later in the year and where there are variations from month to month - running somewhat behind expectations.

Income tax and capital tax receipts are expected to be on target, while receipts in the Customs and Excise area are also likely to be strong.

One of the most significant indicators of the continued buoyant economic outlook is that VAT receipts are well up to predictions, showing that confidence and consumer spending remain high.

A continuing surprise feature about the Exchequer figures is that expenditure is still running behind what was planned at the start of the year. But it is understood the Government still intends to meet the spending targets and will be urging departments to increase their usage of the money allotted for the remainder of the year.

Today's returns come just days after the Economic and Social Research Institute forecast increased growth this year, despite problems caused by increased oil prices and the effects of rising house prices.

Finance Minister Brian Cowen's December budget plans will also have to take account of the first refund payments to those elderly long-stay nursing home patients who were charged for care when it should have been provided to them free of charge. In total, these payments are likely to range between €1bn and €1.5bn but they are likely to be spread over the years 2006 and 2007, as well as this year.

That will give Mr Cowen more leeway to set aside money for extra social welfare increases and to roll out an expected childcare package.

With a general election less than two years away, there is a realisation that this year's Budget has to be the one which begins to deliver on childcare, with both Government parties agreed on the need for action.

Gene McKenna
Political Editor

€1bn tax boost as spending soars





THE public finances could be up to €1bn better than planned this year as the booming property market and strong consumer spending boost tax revenues. But economists expressed concern about signs of weakness in Irish industry.

Department of Finance officials conceded yesterday that tax revenues are likely to exceed official projections by around €500m. But outside analysts think the numbers will be even better, with a possible overshoot of around €1bn.

Government coffers could be boosted even further by the latest Revenue probe of past tax dodgers. People who salted away untaxed income in insurance-linked bonds in the 1980s have until July 22 to make a declaration to the Revenue.

Officials have pencilled in only €200m from such trawls this year.

They said it would not be possible to give a better estimate until the deadline has passed, but some analysts think another €1bn could be raised this way - although not all in 2005.

On the other side, the Government will have to begin paying out the estimated €1bn refunds to people wrongly charged for long-term residential care. Around €300m is expected to be paid this year, although the whole €1bn may have to be deducted from the general government balance as calculated under EU rules.

"At the half-year stage it is still all to play for," said Alan McQuaid, economist at Bloxham Stockbrokers. "We still think the Government is likely to undershoot its deficit target by a significant amount.

For the moment, we are sticking to the view that end-year borrowing will be closer to €2bn than the €3bn projected in the Budget."

Finance Minister Brian Cowen said the public finances appeared to be on course and that spending would stay in line with the 11pc Budget estimate. "Sound public finances are the basis for sustainable growth. I intend to stick to that prescription," he said.

The house-building boom and healthy personal spending - especially on cars - meant stamp duty, VAT and excise (which includes vehicle tax) all brought in more than expected, with a total overshoot of more than €300m. For the first time, stamp duties exceeded €1bn in the first six months of the year. Income taxes were bang on target, which is also something of a record.

"In overall terms, the tax receipts suggest a significant level of economic buoyancy," said Jim Power, economist at Friends First.

But, like other analysts, he expressed some concern about weak corporation taxes and what that might say about the performance of industry.

"Small and medium-sized manufacturers are seeing their margins squeezed by high oil prices and general input costs, and by a lack of pricing power on their own products," he said.

Capital spending is running behind budget and Labour's spokesperson Joan Burton TD said the figures showed why the country has such inadequate infrastructure and poor public services.

Boom goes on.

Irish Indipendent

Brendan Keenan
Group Business Editor