Cost discipline keeps public finances ahead of profile

Tax revenues and voted expenditure are running a combined €0.9bn ahead of profile, reports Investec Economist, Philip O’Sullivan.
Exchequer Returns released this evening by the Department of Finance show that the public finances continue to perform ahead of expectations. Tax revenues to the end of September, at €26.9bn, were very marginally (€4m) ahead of profile, but as before we caution that this is flattered by timing issues in respect of Local Property Tax receipts. Adjusting for that effect shows that underlying tax revenues are 0.3% (€76m) behind expectations for the year to date.

However, the outperformance is much more convincing on the expenditure side, where net voted (discretionary) expenditure is €879m (2.7%) lower than had been forecast. In total the combined outperformance equates to €0.9bn (circa 0.55% of GDP), but we do not agree with calls for the government to moderate its fiscal consolidation strategy in Budget 2014 on the 15th of October, given: (i) weaker than expected GDP numbers, which weigh on the headline deficit; (ii) the still large gap between day-to-day revenue and spending; (iii) the potential harm that a change of strategy could do to market sentiment at a time when new Troika funding is being withdrawn; and (iv) the as-yet unquantified cost to the Exchequer from the IBRC liquidation.

September tax revenues €60m better than forecast…

September’s tax take, at €3.9bn, was €61m ahead of profile for the month. This was mainly down to stronger than expected VAT (+€80m) and stamp duty (+€79m) receipts, likely to be down to stronger Irish consumer spending during Q3 and the recovery in asset prices (note that the annual pension levy appears in September’s stamp duty figure). As mentioned above, headline year to date tax receipts are marginally ahead of profile, and 2.9% above year-earlier levels. Within the various tax headings consumer taxes have undershot targets in the year to date (Customs, Excise and VAT are respectively 5.5%, 4.6% and 1.9% lower than profile) due to the soft consumer performance in H1, income tax is broadly in line (-0.7%) and corporation tax remains well ahead (+10%) of profile

…while voted expenditure was €235m lower than profile during the month
Discretionary spending was 6% lower than had been forecast by the Department of Finance during the month of September, with 11 of the 16 voted areas spending less than had been anticipated, once more suggesting that a culture of parsimony may be pervading across the public sector. Total year to date voted expenditure, at €31.6bn, was 4.9% below year-earlier levels. Of the €879m underspend relative to expectations, €574m relates to current spending (1.9% below profile) and €305m to capital spending (16.6% below profile).