Exchequer deficit triples as tax receipts down 21%

TAX RECEIPTS collected by the exchequer stabilised in May but remain subdued, while the rising rate of unemployment continues to put pressure on Government spending, the latest figures from the Department of Finance show.

The exchequer deficit has widened to almost €10.6 billion, according to the May public finances data published yesterday. This compares to a deficit of €3.6 billion in the same period last year.

Better than expected revenues from income tax, excise duties and corporation tax offset further slippage in receipts from VAT and property-related taxes, leaving the Government with a tax haul of €13.5 billion for the first five months of 2009.

This is slightly ahead of the tax projections published at the end of April.

However, tax receipts remain substantially lower than last year, with revenues down 21 per cent on the €17.1 billion collected in the same period in 2008.

The rate of decline has eased since last month, when the year-on-year decrease was 24 per cent. But Minister for Finance Brian Lenihan said there were still significant targets to be reached in the months ahead if the Government is to reach its full-year tax receipt target of €34.4 billion.

Consumers’ reluctance to spend money in the nervous economic environment continues to be reflected in the low level of VAT receipts.

The Government has collected €5.3 billion in VAT receipts since the beginning of the year. This is down 21 per cent on 2008 and already 3.7 per cent behind the April projections.

Capital gains tax is down 69 per cent on 2008, while stamp duty receipts are 63 per cent lower, reflecting the collapse in the property market.

The impact of the income levy means that the income tax category has held up better. At €4.6 billion, income tax receipts are down just 7 per cent on 2008 and are running 1 per cent ahead of the April projections.

However, Fergal O’Brien, economist at employers’ group Ibec, said that if the budget tax increases were stripped out, income tax receipts in the month of May would have fallen more than 20 per cent year on year.

“This suggests that both pay cuts and rising unemployment had a significant impact on income earned in May,” he said.

Expenditure on public services has progressed as expected so far in 2009, Mr Lenihan said, with the main pressures being in the Department of Social and Family Affairs.

The escalating number of unemployed people means expenditure in the department has increased almost 13 per cent on the same period last year to €4 billion.

Overall, voted Government expenditure in the first five months came to €19.6 billion, up 3 per cent on 2008.

Alan McQuaid, economist at stockbroking firm Bloxham, said there was no reason why the Government should not be able to meet its revised General Government Deficit target of €18.4 billion, or 10.75 per cent of GDP.

Ulster Bank economist Lynsey Clemenger said the figures provided tentative evidence that the Government was on target to meet its tax projections for 2009.