Budget Surplus !
The Budget Surplus and Political Choice
There has been much comment on the Irish State achieving a budget surplus in 2022 of €5 billion in these uncertain times. Receipts amounted to €107 billion while expenditure was €102 bn.
It puts us in a rather exclusive club. Cyprus is the only other country within the Euro zone likely to show a surplus and, of the EU countries not in the Euro zone, only Sweden and Denmark are in a similar position.
There has been much, rather churlish, commentary about “one off” revenues. The Department of Finance identifies €10bn of the €23bn corporate receipts as a “windfall”. But, of course, there have also been one-off expenditures, such as those associated with Covid and cost of living subsidies.
While Covid-related expenditure was less than in 2021 it was still substantial.
Revenue from almost all of the various tax categories were up, but some more than others. Income Tax receipts amounted to €31bn. But, for the first time, Corporate Taxes of €23bn pushed VAT receipts (€19bn) into third place.
Richard Curran (Sunday Independent, 8.1.22) identifies other rather interesting one off revenues.
Enterprise Ireland, the State Organisation which supports Irish-owned export companies, generated €100 million for the Exchequer last year. About 15 years ago, during the Global Financial Crisis (GFC), the State disbursed vast amounts of money to businesses on the verge of bankruptcy. Since EU competition laws prevent subsidies to industry, the money was in the form of Preference Shares at an interest rate of 3%. The loans and interest were only repayable once such businesses returned to profitability. It now appears that in many cases this is the case resulting in a substantial revenue stream for the State.
There have been other very positive legacies from the State’s response to the GFC over ten years ago. The 2022 figures included €590 million from the sale of Bank of Ireland shares which were bought by the Cowen-led Government. Unfortunately these shares have now all been sold.
There was also €760 million received for the sale of AIB shares, which the State also bought during the GFC. Even after this sale, the State retains a 57% share in the bank. There has been talk of having a “rainy day” fund, to be used in the event of a collapse in receipts from the corporate sector. Well, one way of preserving a steady stream of income is for the State to retain its assets. Also, the volatility of the financial sector makes it desirable for the State to retain a strategic interest in a major bank.
Finally, another positive legacy from the State’s response to the GFC was the €500 million it received from NAMA last year. It would be a pity if this institution was wound up, as planned, and the accumulated skills and experience were dispersed to the private sector.
It is difficult to find a cloud in the silver lining! Unemployment is at 4%, which for all intents and purposes is full employment. The major problem in the economy is the lack of availability of residential accommodation, and that can be considered a symptom of success! We had no housing problem when there was emigration and the economy was in recession.
But, If the solution to the problem is to increase the supply of housing, the necessary Labour to increase the housing stock will either have to be found from abroad, or existing Labour resources will have to be diverted from another sector of the economy. That is the implication of Full Employment.
Such decisions cannot be left to the market. The solution can only be found within the realm of politics.