No slowdown in boom economy

€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