Exchequer returns reveal large firms suffering squeeze

LARGE CORPORATIONS and the self-employed are being squeezed by the recession, the latest exchequer returns from the Department of Finance show.

Tax receipts in November slipped a further €3 billion behind target, with a €1 billion shortfall in revenues from corporation tax and a €1.1 billion shortfall in capital gains tax accounting for most of the deterioration in the month.

As November is the month in which most self-assessed taxpayers pay their income tax liabilities, the shortfall of €300 million in income tax receipts for the month indicates that the downturn in the economy is hitting self-employed traders.

Pat McArdle, economist at Ulster Bank, said the slippage of corporation tax receipts compared to start-of-year expectations was "the big surprise" and indicated that big companies were "suffering a profits squeeze". This is likely to have consequences for the labour market in 2009.

So far, income tax receipts, which are €561 million behind expectations for the year to date, have held up better than other categories of tax. However, income tax revenues will come under pressure as more jobs are lost.

The exchequer returns data for November shows that the shortfall in expected tax receipts grew sharply in what is a critical month for the collection in tax.

The end-of-year position is now likely to be much worse than the estimates made by the Department of Finance when it announced its first tranche of spending cuts in July. The state of public finances has also worsened since Minister for Finance Brian Lenihan introduced tax increases in the mid-October Budget.

Spending is running behind the profile published at the start of the year to the tune of €541 million as a result of the spending cuts. But tax revenues for the first 11 months of 2008 are 16 per cent behind projections made at the start of the year, according to the data. They were 12 per cent behind target at the end of October.

The tax revenues are €7.4 billion lower than the €46.2 billion in tax that had been expected in January. The total tax shortfall for the year is likely to be about €8 billion or more, economists said.

For the year to date, VAT has plummeted €2.1 billion behind expectations, capital gains tax is down €1.7 billion and stamp duty has fallen €1 billion short of target.

The collapse of revenues from these taxes is the direct result of the bursting of the housing bubble, with the shortfall in VAT also reflecting a wider malaise in consumer spending. All other categories of tax are behind target.

"It is no surprise that the public finances are under such pressure when you see new car sales down almost 56 per cent year-on-year in November and redundancies notified to the Department of Enterprise, Trade and Employment up over 120 per cent last month on November 2007," said Bloxham economist Alan McQuaid.

Mr McArdle said the 2009 deficit could be as high as €16.5 billion, resulting in a general Government deficit of 8 per cent of gross domestic product, compared to the 6.5 per cent provided for in the Budget.