The latest Exchequer returns published yesterday show that Ireland looks set to record a budget surplus in 2019. Through the first three quarters of the year, Ireland recorded a €2.9bn Exchequer deficit (ex. non-general government items), compared with last year’s €3.8bn deficit at this point. This is 38% (€2bn) less than government expectations.
The improved fiscal position resulted from strong tax revenue (2% ahead of profile and +9% year on year (yoy) and more subdued levels of spending (1% behind profile and +6% yoy).
The Exchequer can credit the much of the gains to corporate tax revenues. Through September, the corporate tax amounted to €5.8bn, 11% (€558m) ahead of preyear expectations and 13% ahead of last year.
Much of the focus of corporate tax will come in the final months of the year in which corporate tax swells due to timings of tax returns. Other strong gains in revenue came as a result of a €15.7bn income tax take (+8% yoy) and VAT returns (+6% yoy to €12.3bn).
Ongoing growth in these two categories suggests economic growth is continuing at a strong clip. In terms of expenditure, Goodbody Stockbrokers say it is welcome to see the purse strings have not been loosened on current expenditure, staying in line with profile however, capital expenditure, which bore the brunt of spending cuts in the austerity years, is running 4% behind profile.
While yesterday’s Exchequer returns are encouraging, there is little in the way the government can do to prepare for a possible no-deal Brexit outcome. Given the surge in corporate tax receipts and the economy leading the way for Euro Area growth over the past number of years, Goodbody contest that budget surpluses should have been recorded for the past three years or more, putting Ireland in a much stronger position to weather any external storms.
According to Goodbody Stockbrokers, "Eyes now turn to the Budget 2020, due for release next Tuesday, in which the Minister of Finance will lay out the fiscal approach in the event of a no-deal. The Budget will be set under the assumption that the economy will grow by 0.7% in 2020 under a no-deal Brexit scenario, although there is a large margin of error around these forecasts."