Budget surplus! Does this mean tax breaks?

No, says expert, despite massive growth for two years

TAXPAYERS can expect to see a ‘modest budget surplus’ this year thanks to a huge surge in the Government’s tax take, according to the latest ESRI report.

That is because both the economy and employment are expected to grow strongly over the next two years.

The Economic and Social Research Institute’s economic forecast is for the economy to grow by almost 5% this year, and almost 4% next year, bringing in extra spending and business revenue to Government coffers.

Meanwhile, unemployment is expected to decline to 5.4% this year and 4.5% next year, increasing what they collect in PAYE and USC payments.

The strong growth in the economy is based on both domestic demand being strong and the international economic climate looking ‘very favourable’, says Report: Kieran McQuinn the report’s author, Professor Kieran McQuinn, of the ESRI.

He said: ‘Between the domestic source of growth and the external source, it’s all looking very positive.’

However, he warned: ‘There are on-going risks. Brexit being one and, more recently, the Trump White House talking about a trade war. The Irish economy would be susceptible to any development.’

And he warned against tax giveaways that could overheat the economy.

Prof McQuinn added: ‘A surplus would be a good thing because the economy is growing so strongly, we need to start taking a little bit of heat out of the economy, so you could even have a larger surplus in 2019.’

This follows a warning last week from Finance Minister Paschal Donohoe that the Government’s budgetary policy must not contribute to ‘overheating’. He said: ‘Prudent management of the public finances and competitiveness oriented policies helped create the recovery and this approach will help sustain the recovery in the years to come.’

GDP is expected to grow by 4.8% this year and 3.9% next year, according to the report.

This forecast is based on ‘a technical assumption that a European Economic Agreement is in place between the UK and the EU’. It adds: ‘Strong domestic consumption and investment, along with improving international conditions, are the main factors underpinning this growth.’

The prediction is more than double the 2.1% average growth expected across the Eurozone this year and 1.9% for next year.

Meanwhile, unemployment averaged 6.7% last year, while economic growth – when you remove the distorting effects of foreign multinational companies – was just 3.9%.

Mr Donohoe also said, last week: ‘It is clear that the economy continues to perform strongly. The strength of the domestic economy, for example, is reflected in robust tax receipts as well as full-time employment growth of almost 6% last year.’

And in spite of strong economic growth, a lid is being kept on inflation. christian.mccashin@dailymail.ie

‘It’s all looking very positive’