Tax take for first eight months 10% below expectation

TAX REVENUE collected by the Government in the first eight months of the year has slipped 10 per cent behind the projections made by the Department of Finance at the beginning of the year.

The exchequer returns figures for August, published yesterday, reveal a worsening picture for the public finances as economic conditions weakened rapidly for the second month in a row.

The total tax revenue received by the Government for the first eight months of 2008 came to €24.7 billion.

This compares to an expected tax take of €27.5 billion for the period.

The €2.8 billion shortfall in tax receipts as of the end of August marks a deterioration on the €2.2 billion shortfall that had accumulated by the end of July.

The shortfall is already fast approaching the revised €3 billion shortfall projection for the full year of 2008 that the Government made just two months ago.

The tax take fell more than €500 million short of expectations in the month of August alone.

If this pattern continues for the rest of 2008, the tax shortfall for the full year will be close to €5 billion.

Fine Gael finance spokesman Richard Bruton yesterday predicted that the shortfall would reach €6 billion by the end of the year - double the figure predicted by the Government in July.

Receipts from every major category of tax remain below the Government's forecasts, with the tax haul from property-related taxes lagging targets most dramatically.

Lower than expected receipts from capital gains tax, stamp duty and VAT are responsible for three-quarters of the total tax shortfall for the year.

Stamp duty is 28 per cent behind the Department of Finance's start-of-year projections, with receipts coming in €480 million less than expected.

Capital gains tax is running €436 million or 39 per cent behind projections.

However, it is the €1.17 billion or 11 per cent shortfall in VAT receipts that is most worrying to economists.

This is because it may reflect a wider slowdown in consumer spending beyond the property market.

The overall exchequer deficit for the first eight months of the year was €8.4 billion, three times the figure for the same period in 2007.

Government spending is also running €218 million ahead of target.

There has also been a sharp increase in the numbers of people claiming jobseekers' benefits, putting pressure on welfare spending.

The acceleration in job losses and the decline in the number of full-time people in employment has also diminished receipts from income tax, which is running €156 million or 2 per cent behind the projected figures and about €84 million behind the 2007 trend.

Alan McQuaid, an economist at stockbroking firm Bloxham, said the tax figures were "the latest indication that the Irish economy is in a significant downturn phase".

He forecast that the economy could contract by as much as 2.5 per cent this year.

"The size and speed at which the public finances have moved from a position of surplus to one of deficit is a source of serious concern," Mr McQuaid said.

Davy Research economist Rossa White said the trend of sharp deterioration in tax revenue was set to persist for many months.

"Worryingly, income tax returns are inching below forecast.

"That will only get worse thanks to a weak labour market and especially when self-assessment returns are made."

Mr White said it was "almost certain" that the tax shortfall would mean the Government's borrowings would end the year in excess of the 3 per cent limit set by the EU.

"Fiscal stimulus is now imperative, ideally before December's budget," he said.