By Andrew Bushe
DUBLIN — Treasury figures for the first eight months of the year show that the Celtic Tiger is still growling louder than had been thought with the result that government coffers are brimming with cash and the scope for tax cuts will be greater than expected.
The budget surplus was a whopping £5.86 billion, compared with a surplus of £1.03 billion at the same time last year, figures released last week revealed.
Excluding the windfall of £3.7 billion from the sale of Telecom Eireann, the underlying budget surplus is still £2.2 billion — roughly double that of last year.
The unprecedented returns continue to be driven by healthy tax revenues, which rose 162 percent — more than twice the target for the full year.
The budget forecast was for a 7.5 percent tax increase for the year as a whole.
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All areas of tax are ahead of target. Expenditure taxes are up about 16 percent, VAT is up over 15 percent, income tax is up almost 12 percent, corporation tax is up 34 percent and stamp duty has jumped by 28 percent, mainly as a result of the booming house market and share sales.
Jim O’Leary, economist with Davys Stockbrokers, told RTE the tax figures were a surprise because everybody had been expecting that tax revenue growth would slow down as the year progressed.
"It is inevitable at this stage that there is going to be huge tax overshoot this year," O’Leary said. "I suspect that it is going to outstrip that of last year and the year before. In others words, it is going to be over a billion pounds."
O’Leary said the figures indicated that the economy had been growing significantly more rapidly than economic commentators had been expecting.
"The last time we had tax growth of this kind was in 1997 and that year the economy expanded by about 9 percent of GNP," he said. "Last year it grew by about 8 percent with a tax revenue growth of 13 percent."
He expects tax revenue to slow down for the last four months of the year but to still finish at about 14 percent up and that GNP growth will be 8 or 9 percent.
"That compares with a forecast by the Department of Finance at the start of the year of 6 percent and with a forecast from ourselves as recently as June of 7 percent. So this economy is still motoring," O’Leary said.