Tax revenues collected by the Government up to the end of July are €575 million lower than the Department of Finance expected a little over three months ago, putting pressure on the Government’s tax targets for 2009.
The shortfall in tax receipts has trebled over the last month, according to figures published by the Department today. If this trend continues, the Government will be unable to meet its projection of €34.4 billion in tax revenues this year.
The Exchequer deficit grew to €16.4 billion at the end of July, compared to €14.7 billion at the end of June. The deficit, which is almost €10 billion higher than it was this time last year, includes €6 billion in payments to bail out the banks.
The latest Exchequer returns point to further weakness in the economy, led by a decline in consumer spending. The gap between the projected and actual level of VAT returns, an indicator of economic consumption, widened to €448 million and accounted for most of the shortfall.
The subdued state of the labour market was reflected in a worsening shortfall in income tax receipts, which are €185 million behind the Government’s targets.
Receipts from corporation tax were barely positive in July at just €5 million, as repayments to companies that overpaid on their preliminary corporation tax or were due tax credits almost cancelled out new revenues.
Capital gains tax (CGT) receipts are less than a third of what they were at the same stage in 2008, while the stamp duty yield has dropped 64 per cent since last July, when it was already at a low base.
Fine Gael deputy finance spokesman Kieran O’Donnell said the “startling” collapse in tax revenue suggested there was “still no sign of any green shoots”, with the plummeting VAT receipts indicating a “a general lack of confidence in the economy”, while Sinn Féin finance spokesman Arthur Morgan said the crisis in public finances highlighted the need for urgent tax reform.
Overall, tax revenues collected in the first seven months of 2009 amount to €18.7 billion and are down 17.6 per cent on the same period last year. The tax take has slipped 3 per cent behind the targets published by the Department at the end of April.
Davy Research economist Rossa White forecast today that tax revenues for the year would be “closer to €33 billion”, which is more than €1 billion less than the Government’s latest projections, while Ulster Bank said the July figures “call the achievability of the Government’s full-year target somewhat into question”.
The data for Government expenditure shows that current spending - spending on the day-to-day running of the State - is broadly in line with the Government’s targets, but is up 2.6 per cent on the same period in 2008.
The Department of Health and Children is the only department where spending is running ahead of expectations. Compared to last year, Department of Social and Family Affairs spending is up €663 million or 13 per cent.
Fergal O’Brien, economist at business group Ibec, described the lower than anticipated returns from VAT as “the biggest disappointment” in a worse-than-expected set of Exchequer figures, and said it reflected “considerable pressure” on businesses that have been forced to cut prices in a bid to keep consumer spending afloat.
“While deflation will help the economy restore some competitiveness it appears that it is also going to be a significant drag on taxation revenues,” Mr O’Brien said.