October 2, 2018 / 3:42 PM / a year ago

Ireland to hit deficit target after hike to GDP forecast

DUBLIN (Reuters) - Ireland expects to hit its budget deficit target of 0.2 percent of gross domestic product this year after a sharp hike to its economic growth forecast offset overspending in some areas and a slightly weaker than anticipated tax take.

FILE PHOTO: Offices in the Central Bank of Ireland are seen in the financial district in Dublin, Ireland November 8, 2017. REUTERS/Clodagh Kilcoyne

Ireland’s finance department increased its forecast for GDP growth this year to 7.4 percent from a previous estimate of 5.6 percent and nudged up its projection for next year to 4.2 percent from the 4.0 percent forecast six months ago.

Irish GDP has outperformed everywhere in Europe since 2014 but the relevance of using the conventional measure of growth has diminished after a series of distortions related to Ireland’s large multinational sector that hit again this year, leading to first half growth of 9.1 percent.

“We expect to come in bang on the nose in and around a deficit of 0.2 percent this year as projected, with the good things being counteracted by overruns in other areas,” Prime Minister Leo Varadkar told parliament.

The main overspending at the end of the third quarter was again in the health department which was running 301 million euros or 2.7 percent above profile, data from the finance department showed on Tuesday.

While total spending was 0.1 percent behind where the government had estimated, the money set aside for departments and capital projects is typically spent by the end of the year.

The exchequer also remained 0.3 percent or 127 million euros behind its tax revenue target for 2018 at the end of September, which analysts said did little to change the arithmetic for next Tuesday’s presentation of the budget for 2019.

While corporate tax receipts were 6.3 percent ahead of target at the end of the third quarter, income tax and value-added tax, the two largest tax categories, stood 0.1 percent and 0.3 percent below target. A large 8.0 percent underperformance in excise duty more than wiped out the company tax gains.

The total tax take, however, was still 5.2 percent up year-on-year, reflecting Ireland’s strongly performing economy.

Finance Minister Paschal Donohoe has a modest 800 million euros to dish out on further tax cuts and spending increases next year, having already committed over 2 billion through previously announced increases in current and capital spending.

Donohoe is expected to find extra money through measures under consideration including the scrapping or part-scrapping of a reduced VAT rate for the tourism sector, although he is also under pressure from the country’s central bank to target a budget surplus next year instead of the planned minor deficit.

“With Brexit uncertainties looming, it remains to be seen whether the minister will aim for a cautious budget, eschewing large giveaways, in favor of a more ambitious target for a surplus,” Davy Stockbrokers chief economist Conall MacCoille wrote in a note.

Reporting by Padraic Halpin; Editing by William Maclean and Peter Graff

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