DUBLIN (Reuters) - Ireland's budget surplus could reach 2% of gross national income this year, the country's fiscal watchdog said on Wednesday, significantly ahead of the 0.5% the finance ministry forecast when it upgraded its estimates just last month.
A further surge in tax revenues - particularly corporate tax collected from Ireland's large hub of multinational firms - prompted the ministry to predict that the public finances would return to surplus rather than remain in deficit this year.
The Irish Fiscal Advisory Council (IFAC) said tax revenues could be almost 3.5 billion euros higher than the amount assumed by the finance ministry after data showed revenues were 4.6% ahead of target at the end of July.
The government has used the better-than-expected finances to increase its upcoming budget package for 2023 and promise an additional set of one-off measures to help to fight soaring inflation, which is being driven by high energy prices.
IFAC said around 2.5 billion euros of contingency funds put aside this time last year to cover potential COVID-19 and Brexit costs during 2022 remained unspent and could cover the one-off measures without impacting the forecast surplus.
It said more temporary measures may be needed later this year on top of those to be announced in the Sept. 27 budget and that ministers faced a delicate balancing act in avoiding adding to rising prices, while helping the most vulnerable.
"If they were to take truly massive temporary measures, that would add to inflationary pressures and be a bad idea. On the other hand, some combination of permanent and temporary measures is probably a sensible way of managing the different uncertainties," IFAC Chair Sebastian Barnes told reporters.
Barnes added that while other European economies may tip into recession, the picture in Ireland was very different due to the underlying rate of growth being much faster going into the recent slowdown and expectation that the tech and pharmaceutical multinational sectors would continue to support growth.
The finance ministry expects that modified domestic demand - its preferred measure of economic activity - will grow by 4.2% this year.