Exchequer on course to beat revised forecasts  

Exchequer Returns released by the Department of Finance (DoF) show that the deficit for the first 10 months of the year came in at €2.2bn, which is 74% lower than the outturn for the same period in 2014.

This improvement is chiefly driven by a marked revenue outperformance, while overall spending has also come in lower than target, mainly due to lower interest expenditure. The DoF recently amended its guidance for the public finances for FY 2015 and looking at the implied outturn for the final two months of the year the indications are that the Exchequer will exceed these new targets.

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On the revenue side, tax receipts for the first 10 months of the year, at €35.1bn, were 7.6% ahead of profile and 9.6% above year-earlier levels. Of the 10 tax headings, eight of these are tracking ahead of profile, with the main beat being corporation tax (€4.8bn vs a profile of €2.7bn – this accounts for the bulk of the €2.5bn outperformance in the year to date). In the month of October alone, total tax receipts were 27.1% ahead of profile at €3.4bn, mainly due to an unexpected €803m corporation tax inflow. The DoF says that the corporation tax outperformance “is broad based and primarily relates to improved trading and some timing factors”.

Non-tax revenues came in at €2.4bn, which is €165m or 7.3% ahead of profile, mainly due to higher dividends from State entities.

On the expenditure side, gross voted (discretionary) spending was only €17m (<0.1%) ahead of profile at €43.7bn. Current expenditure was €251m (0.6%) ahead of profile, with capital spending €234m (9.7%) below profile. The main overshoot on the spending side was once again in Health. We note that the DoF says that “further expenditure pressures are expected to arise in a number of Votes over the remaining months of the year” – this is consistent with Budget guidance that the spending sluices would be opened in Q4 to help ease the transition to the new EU fiscal regime from 1 January.

Interest expenditure in the first 10 months of the year came in at €6.4bn, 7.7% or €532m below profile and 5.1% below year earlier levels. This improvement reflects the retirement of IMF and other Sovereign debt along with the lower than anticipated costs of this year’s bond issuance.

Philip-O'Sullivan-InvestecIn last month’s Budget 2016 publications the DoF amended its guidance to project FY tax receipts of €44.6bn and an Exchequer Balance of -€2.8bn. To meet the revised tax revenue target this implies that receipts for November and December would have to be €134m lower than the ‘old’ profile – this seems implausible given the substantial (and widespread) outperformance in the tax headings since the start of the year, although we note the DoF’s reference to “some timing factors” above. We should note as well that ex-corporation tax revenues were marginally below profile in October, but we anticipate a rebound next month given the positive read-through from a series of recent economic data points. Our bet is that Ireland’s track record of under-promising and over-delivering where the public finances are concerned will extend into next year.

Information supplied by: Philip O’Sullivan, Investec, Telephone: +353-1-4210496
The Harcourt Building, Harcourt Street, Dublin 2, Ireland