Exchequer Returns for the period to the end of November released by the Department of Finance (DoF) reveal a very strong performance.

For the first 11 months of the year the Exchequer posted a surplus of €343m, which compares with a deficit of €5.8bn in the same period of last year. This is the first time since 2007 that the Exchequer has posted a surplus to the end of November. This outturn has been driven by a combination of factors, namely very strong tax receipts, inflows from State asset sales and disciplined spending. Without the impact of one-off transactions, the improvement in the deficit would have been of the order of c. €4.8bn.

To start with tax, total receipts for the first 11 months of the year came in at €42.0bn, which is 7.5% (€2.9bn) ahead of the DoF’s profile and 10.0% above year-earlier levels. This outperformance was chiefly led by corporation tax (receipts of €6.4bn, which is €2.3bn or 57.7% ahead of target). While the scale of the outperformance in corporation tax receipts has given rise to concerns in some quarters about its sustainability, we are reassured by guidance from the Revenue Commissioners that only €0.3bn of the ‘beat’ relates to one-off items, while the Minister for Finance has reaffirmed that the improvement in this heading is “broad based”. Of the nine main tax headings, seven are running ahead of profile. November is a significant month for both corporation tax and income tax and these came in 31.1% and 2.6% above year-earlier levels respectively (and also 24.0% ahead and 1.6% behind profile respectively). We would not be concerned about the seemingly underwhelming income tax outturn as the benefits from improving labour market trends are, to a certain extent, being camouflaged by a drop in DIRT receipts (a function of the sharp fall in deposit interest rates).

Non-tax revenues of €3.0bn at end-November were €658m (+28.1% y/y) above the outcome for the same period of last year, mainly due to an increased Central Bank surplus. Elsewhere, capital receipts were €7.3bn versus €5.1bn in the same period of last year, with the uplift due to inflows from disposals in the banking sector and the sale of Aer Lingus.

On the spending side, total net voted (discretionary) spending to end-November was 0.6% below profile, with current expenditure in line while capital expenditure was 7.7% below profile. We do note, however, that gross voted current spending is running €351m (0.8%) ahead of target, with all of this down to overshoots in Health and Social Protection (the other 14 departments were either on or under profile). Given the additional spending signalled for these areas in the run up to October’s Budget, this is not a surprise and, indeed, the DoF’s release states that: “further expenditure pressures are expected to arise in a number of Votes in December which will be accommodated through the provision of supplementary estimates”. Interest expenditure on the national debt was €637m (8.8%) less than expected, due to the early retirement of Troika debt and lower than expected borrowing costs on 2015 issuance.

In comments to the Oireachtas Finance Committee yesterday, the Minister for Finance said that a FY 2015 deficit of “probably around 1.7% [of GDP] was more likely” than the 2.1% projected on Budget Day in October. This implies a beat of €0.8bn relative to the originally envisaged General Government Balance (of -€4.4bn). For FY 2016, the Minister now sees the deficit at a range of 0.7-0.8% of GDP (compared to the Budget Day forecast of 1.2%), the midpoint of which suggests that next year’s General Government Balance should be €1.0bn ahead of the €2.8bn guided on Budget Day.

Wednesday’s release shows that the General Government Balance for the first 11 months of the year was -€1.7bn, so the Minister’s revised projection for this year looks eminently achievable. For FY 2016, as the Budget forecast only assumed a 5.8% y/y improvement in tax revenues (versus a 6.2% y/y forecasted increase in nominal GDP), our sense was (and remains) that the risks to the public finances lay to the upside, so we would not be surprised if the Minister’s upbeat projection for next year is also realised, provided that there is no meaningful change in fiscal policy in the aftermath of General Election (which is expected to be held in February).

Philip O’Sullivan is Chief Economist for Ireland with Investec Bank plc