Tax and excise duties fail to hit Exchequer target

Weakness in income tax and excise duties depressed overall Exchequer receipts in the first two months of the year, according to official figures for February. The monthly Exchequer returns, published yesterday, showed a deficit of expenditure over income of €127.5 million, compared to €67.3 million in the same period last year.

Overall tax revenues of €4.413 billion were up 6 per cent on the first two months of last year. However, tax receipts were €169 million, or 3.6 per cent, below the amount predicted by the Revenue Commissioners for the January-February period.

For the first time, the Department of Finance published, at the start of this year, expected spending and tax figures for each month, allowing comparison with the published figures. The tax forecasts came from the Revenue Commissioners while the spending profile came from Government departments.

In the first two months, excise duties were €99 million below Revenue expectations and income tax was €89 million lower. The income tax trend, showing a 4 per cent fall on the same period last year, looks better than in January, when the figure was down 10 per cent annually. However, it still suggests that the jobs market is weak. Income tax will be closely watched during the year, as it was the main source of weakness in 2002.

Corporation tax receipts of €80.5 million in January-February were 8 per cent up on the same period last year, although they were a hefty €196.5 million lower than what the Revenue had forecast for the first two months. Given the bulky nature of corporation tax payments and the fact that most payments are made in June and November, too much cannot be read into the corporation tax figures at this stage.

There were also some positives in the figures, with VAT receipts of €1.835 billion well ahead of the €1.71 billion target for the first two months. Most of this reflected high payments in January relating to trade in November and December and suggests some buoyancy in consumer spending in the run-up to Christmas

Elsewhere, stamp duty came in ahead of forecast, largely reflecting continued strength in the housing market.

On the spending side, total voted expenditure in the first two months of the year was 16.7 per cent up on the same months in 2002. However, this was well below the 33 per cent annual rise in January.

In its spending profile - or monthly forecasts for expenditure - the Department of Finance expected spending to run well ahead of 2002 levels in the early months of this year, before a sharp slowdown later in the year, to leave an annual increase of 6.7 per cent for 2003. The 16.7 per cent spending increase in the first two months was actually well below the predicted 26 per cent rise in the spending profile.

Commenting on the figures, Mr Robbie Kelleher, chief economist at Davy Stockbrokers, pointed to custom duties running 16 per cent down on the same period last year as evidence that exporters and importers were finding conditions difficult. The weakness in excise duties, meanwhile, suggests a fall of around 6 per cent in the volume of sales of excisable goods such as tobacco and alcohol, he said, which was consistent with evidence coming from these industries.

Overall, according to Mr Kelleher, it was still far too early to draw conclusions about the likely out-turn for the year. The figures were consistent with an economy that "is flat but is not falling out of bed".

Opposition politicians claimed the figures were evidence of continued difficulties in the management of public finances.

Tax receipts were below forecast and "sadly, the continued mismanagement of public finances appears to be the recipe for 2003, once again", according to Mr Richard Bruton, Fine Gael finance spokesman. Lop-sided and ill thought-out cuts were proving dangerous, he said.

For Labour, Ms Joan Burton said "the continuing weakness in income tax figures is yet another worrying signal that the economy is not performing well".

Practically every economic indicator is producing bad news for the economy, she said, but the Government has no response except to "cut and cut again".