EXCHEQUER RETURNS:TAX REVENUES are "under pressure" and were lower than anticipated in February, the Government said yesterday as it published what it said were "disappointing" exchequer returns data showing a further deterioration in the economy.
The amount of tax collected by the Government in the first two months of the year was down almost 24 per cent or €1.8 billion on the sum collected in the same period last year. This means the drop in tax receipts is accelerating. In January, the decline in tax revenues was falling at a rate of 19 per cent.
The worsening picture for public finances has prompted the Government to announce an emergency mini-budget, which will be held at the end of this month.
In the first two months of the year, the exchequer posted an overall budget deficit of over €2 billion compared to a deficit of €125 million for January–February 2008. Tax receipts worth €5.7 billion have been collected to date this year, a substantial decline on the €7.5 billion collected in the same period in 2008 – a time when the economy was already faltering. Tax revenues are now almost back to levels last seen in 2004.
The property-related taxes of capital gains tax (CGT) and stamp duty show the most dramatic falls, with CGT receipts declining 73 per cent and stamp duty receipts down 59 per cent year-on-year.
Corporation tax fell 37 per cent, while VAT, a category of tax driven by the housing market and consumer spending, is down almost 17 per cent.
Income tax receipts, which remained resilient last year, are now beginning to crumble under the weight of falling employment. Despite the additional revenue from the income tax levy, total income tax receipts are down 7.4 per cent on last year.
Meanwhile, social welfare spending is running 8 per cent or €118 million ahead of last year, largely as a result of swelling numbers of unemployment claimants. Total Government spending is up €300 million on last year despite a series of spending cuts.
In a statement, the Government said it remained “vigilant” and was committed to restoring public finances to a sustainable position.
“This Government will take the necessary action to ensure that the General Government Deficit does not worsen from the forecast 9.5 per cent of GDP,” it said.
The latest Reuters poll of Irish economists, released before the publication of the February data, indicates that they expect the General Government Deficit to rise to 11 per cent of GDP this year, the highest in the euro zone, and more than 3½ times the 3 per cent EU limit.
The European Commission has initiated disciplinary procedures against Ireland for running excessive public deficits.
“Quite simply, things are going from bad to worse,” said economist Alan McQuaid from stockbrokers Bloxham. “The public finances were already in a pretty bad position heading into 2009, and these latest exchequer figures will do little to lift the spirits of the Government.
“The bottom line is that the medicine that needs to be dished out will be pretty severe,” Mr McQuaid added, predicting that the mini-budget would focus on tax hikes rather than cuts.
Ulster Bank economist Pat McArdle said tax revenues for 2009 would be €34 billion, undershooting the Department of Finance’s January estimate by €3 billion.