Fianna Fáil Finance spokesperson Michael McGrath has said a cautious approach is needed in how the State spends the unexpectedly strong corporation tax receipts received to date in 2015.
According to October’s Exchequer returns the state took in €2.47bn more in taxes in the first ten months of the year than it expected. However on closer examination it is revealed that 82% of this additional revenue came from corporation tax which has proved to one of the most volatile tax heading in recent years.
By contrast, income tax and VAT were only marginally ahead of expectations year to date, while excise duty is actually below what was forecast. Non tax revenue, which includes the money the State earns from the Central Bank’s holding of Irish government bonds, is also performing strongly, up by nearly €700m on this time last year.
Deputy McGrath commented: “The Government have been on a concerted pre-election spending spree for the last 12 months. This began with a reversal of the planned €2bn budget adjustment in 2015 and led to €1.1bn of supplementary estimates at the end of 2014 and a €1bn tax and expenditure giveaway for 2015. Already this year the government have announced a further €1.7bn in supplementary estimates, without any improvement in services, due to the mis-management of the public finances and budget day measures amounting to €1.5bn. All told these amounts to a €7.3bn pre-election spend.
“A considerable proportion of the additional expenditure is being funded by corporation tax receipts and profits from the Central Bank. Both of these windfalls may not be repeated in future years. The risk associated with treating corporation tax receipts as permanent can be seen from the fact that the top 10 taxpayers account for about a third of overall corporation tax revenue. Should international trading conditions deteriorate we could see these revenues evaporate. Governor Honohan made warnings along similar lines before the budget.
“The government has failed to articulate a strategy as to how to deploy this money effectively. Their record in four key domestic issues: housing, healthcare, mortgages and water, has been abysmal. They are unable to point to a single concrete achievement in these areas, despite spending being massively ramped up.
“There have been over-runs in health expenditure which have failed to deal with waiting lists and A&E overcrowding. By contrast the Minister for the Environment, Community and Local Government, for all his talk, has failed to spend one-third of the capital budget allocated to him. All of this points to a government without a proper plan for management of the public finances.
“There is now a real risk now that an incoming government will be forced in to an immediate reining in of runaway spending in order to comply with EU expenditure rules. This will also considerably reduce the scope for any further tax cuts. The Taoiseach’s claim of wanting to abolish the Universal Social Charge in the lifetime of the next government is considerably undermined by data provided by his own Minister for Finance,” concluded Deputy McGrath.