Government records largest ever deficit

The Government recorded the largest ever deficit and the largest ever shortfall in tax receipts in the history of the State in 2008, figures from the Department of Finance confirm today.

The total tax receipts collected by the Government last year amounted to €41.6 billion, down from €47.8 billion in 2007, taking the value of the State's tax haul back to 2005 levels.

The tax receipts were €8.1 billion below what the Government had expected at the start of 2008. But after the collapse of the housing market and a standstill in the commercial property market, taxes related to the property sector dried up.

VAT receipts for the year were €2.1 billion below target, while capital gains tax (CGT) was almost €1.8 billion lower than expected. Corporation tax was €1.6 billion behind target and stamp duty was down €1.2 billion and is now back to 2003 levels.

The intake from VAT has also been dented by a decline in retail sales, which makes up around half of all consumer spending, as shoppers felt the pinch of recession.

At €12.7 billion, the overall deficit is €1.2 billion worse than the figures cited in Budget 2009 in October. The general government balance (GGB) deficit in 2008 was 6.25 per cent of GDP.

Department of Finance assistant secretary Michael McGrath said the 6.5 per cent GGB deficit pencilled in for 2009 in the Budget was likely to be higher - possibly as much as 8 per cent - due to the higher than expected tax shortfall and ongoing economic weakness.

A 66 per cent annual spike in the number of unemployment benefit claimants on the Live Register led to an overrun in social welfare spending of €349 million.

Changes made last year to the formula for calculating the amount of money that the Department of Health receives from UK health authorities for treatment of UK citizens in the Republic led to health spending coming in €296 million ahead of target.

The health and social welfare overruns meant overall spending was €351 million or 0.7 per cent above forecasts, despite the successful implementation of a range of cost-cutting measures across departments announced in July 2008.