The Minister for Finance's options for Budget day have increased markedly, due mainly to an unexpected surge in capital gains tax revenue.
With savings also coming through on the national debt, pre-Budget figures show that Mr McCreevy now has more scope to plan for welfare increases and modest tax concessions in next Wednesday's package.
The huge inflow of capital gains tax over the past month and strong returns from capital acquisitions tax has left revenue from these sources almost €500 million higher than expected. Because capital gains tax is paid in late October, this windfall has only come to light in today's figures.
The White Paper, which estimates the Exchequer position for 2003 and forecasts trends for 2004 before Budget measures, shows that capital tax buoyancy has offset weakness in other tax receipts.
Total tax revenue is now expected to be €100 million above Budget forecast this year, a dramatic turnaround when just last month the Department of Finance was warning that the shortfall could reach €500 million.
Together with €200 million savings on national debt servicing costs, this means that Government borrowing this year - using the EU measure - is now expected to be just €605 million, €280 million below the Budget forecast. This has improved the outlook for 2004.
Mr McCreevy is expected to increase most social welfare rates in tandem with anticipated inflation of 3 per cent, with bigger increases on pensions and child benefit.
The latest figures are sure to increase pressure on the Government to reverse some planned social welfare cuts and to increase spending on infrastructure. However, so far Mr McCreevy has insisted that the only significant spending increases on Budget day will be in welfare rates.
Labour's finance spokeswoman, Ms Joan Burton, said the White Paper showed that the "austerity programme" being followed by Mr McCreevy was not necessary.
Mr McCreevy is expected to go further than last year in adjusting income tax credits and the standard rate income tax band for inflation. To help pay for this, some excise duty increases are expected, but these will be more modest than the last Budget and are likely to add less than 0.5 per cent to inflation next year. More than €80 million in extra revenue will also be pencilled in for the imposition of PRSI on benefit-in-kind payments.
Before the Budget measures, the White Paper shows that the Department of Finance expects tax revenue to increase by 5 per cent next year, with income tax rising strongly as the jobs market improves. Excises are only expected to rise slightly, partly due to the expected impact of the smoking ban.
Mr McCreevy will start out before the Budget already having to borrow €1,038 million to bridge the gap between spending and revenue. He is expected to limit additional borrowing on Budget day and aim for a deficit of €1,400 to €1,500 million for 2004, about 1 per cent of expected GDP or possibly slightly less and well below most other EU countries.
Tax take arithmetic rules out hard times: page 16
