The Irish exchequer (excluding nongeneral government items) has run a €4.4bn deficit in the year to April, over double the deficit run through March. This remains in line with the government’s expectations.
The latest returns published yesterday show that the increased deficit comes as a result of both an increase in current (+4% yoy) and capital spending (+26% yoy), despite tax revenues growing (+6% yoy).
Tax revenues were in line with expectations through the first four months, despite growing by 6% yoy. The big underperformers relative to profile were VAT (4% behind) and income
tax (2% behind).
On the other hand, corporation tax continues to provide significant windfall to government finances (50% ahead of expectations), however this revenue source is quite volatile. Additionally, customs & excise duty offset much of this underperformance, coming in €137m ahead of expectations.
Capital spending bore the brunt of cuts in the austerity budgets and so spending growth of 26% yoy in capital expenditure is welcome, but this is in line with expectations. Elsewhere, current expenditure increased by 5% yoy to €20.3bn through April. This was primarily driven by an increase in health spending (+5.6% yoy), educations and skills (+5.2% yoy) and other (+9.2% yoy).
According to Goodbody Stockbrokers, "Overall, the government have met their headline expectations, and positives can be taken from the strong tax revenue growth, but a problem we have cited before is pro-cyclical current spending. A prudent fiscal policy would be to shift resources towards paying down Ireland’s national debt or allocate additional capital to the “Rainy Day” Fund."