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Budget 2019 to target balance for first time in over a decade

Written by Robert McHugh, on 8th Oct 2018. Posted in Financial

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Goodbody Stockbrokers has reported Ireland will target a budget balance for the first time in over a decade in Budget 2019 tomorrow.  
 
In a report issued today, Goodbody say the final pieces of the jigsaw were put into place over the weekend after the finalisation of the pre-budget position in the form of the White Paper on Receipts and Expenditure. This shows that the final outturn for 2018 is now expected to be a general government deficit of just 0.1% of GDP, slightly better than its previous estimate (0.2% of GDP).  

Prior to the measures to be announced tomorrow, a budget surplus of 0.2% of GDP is expected. New spending and tax measures are now expected to lead to a balanced budget for 2019.
 
Goodbody say the better than expected performance is primarily related to another overshoot in corporation tax receipts in 2018. It is now estimated that this tax will take in €9.6bn this year, €1bn higher than expectations. The other tax headings are largely in line with expectations overall. A significant part of this unexpected windfall will be used to plug overspending in the Department of Health, which is expected to exceed its expectation by up to €700m by the end of the year. Both have been features of the fiscal outturns over recent years. 

While the boom in corporate tax receipts may just be temporary, Goodbody say the extra spending on health goes into the base for the calculations for next year. This not only reduces resources for other areas, it also poses risks should there be a reversal in the highly volatile tax headings like corporation tax.
 
According to Goodbody, "With the economy expected to grow rapidly, debt levels as a proportion of economic output will fall in 2019. Given the fiscal indiscipline in other euro area countries such as Italy, a targeted budget balance for 2019 may be seen as prudent. However, there are other smaller euro area countries that are already in a budget surplus. Given the dynamism of recent years, Ireland should arguably be also in this position."

Source: www.businessworld.ie  

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