Tax surge to slash borrowing by €3bn

Surging tax receipts are set to cut Exchequer borrowing this year to €1.3 billion below the Budget target, according to new forecasts from the Central Bank.

In a positive outlook for the economy, the bank is also predicting that the unemployment rate will edge down close to 4 per cent which, it says, " probably represents a situation close to full employment for the Irish economy".

The bank has already upgraded its growth forecasts for this year in its recently published annual report, which predicted Gross National Product growth of 4.25 per cent this year. Its summer bulletin, published today, examines the implications of stronger growth. It says that borrowing, using the EU general government deficit measure, could be almost eliminated if spending is kept under control for the rest of the year.

Tax revenues in the year to end-June were some €1 billion ahead of target, boosted by strong growth and receipts from the Revenue scheme on offshore deposits. If tax buoyancy is maintained, then the bank predicts that Exchequer borrowing for the year will come in some €1.3 billion below target.

This would reduce the general government deficit from a Budget target of just over €1.6 billion, or 1.1 per cent of GDP, to just €300 million, or 0.2 per cent of GDP.

Total exchequer borrowing, which also includes the money contributed to the national pension reserve fund, would fall from a targeted €2.8 billion to around €1.5 billion.

This would leave the Republic with one of the lowest borrowing levels in the EU and, while the bulletin does not look forward to next year, would leave the Government in a strong budgetary position for 2005.

The Central Bank is also bullish on the outlook for jobs, predicting that the total number of people at work will increase by 47,000, or around 2.5 per cent, this year to reach 1.858 million. A increase of a further 44,000 in total employment is predicted for next year.

The jobs market will "tighten", the report predicts, with recent Central Statistics Office figures showing that the number of people available and looking for work has declined since the first quarter of last year. However, the bulletin says that "there is not, as yet, the same degree of labour market tightness as was evident during 2001".

The unemployment rate is predicted to average 4.5 per cent this year and to ease down to 4.25 per cent next year, bringing the Republic close to what would effectively be full employment.