THE DISCLOSURE by Minister for Finance Brian Lenihan that projected tax revenues have dropped by another €3 billion since January has highlighted the scale of the challenge facing the Government in devising its emergency budget for April 7th.
Mr Lenihan told the Dáil yesterday the projected tax take for 2009 will be €34 billion as against the €37 billion estimate in January. Last year tax revenue was €41 billion and in 2007 it was €47.8 billion.
Mr Lenihan told Fine Gael finance spokesman Richard Bruton on January 9th that the Government had forecast total tax receipts in 2009 of approximately €37 billion. “Only €34 billion in tax receipts would be collected in 2009, representing a year-on-year decline of over 16 per cent,” he added.
With Government spending for 2009 estimated at close to €58 billion, a gap of €24 billion now has to be bridged. The bulk of that will be made up of borrowing, but savings and tax increases of the order of €6 billion will also be required.
The Cabinet will meet again today to consider its options. Welfare payments are the biggest item of Government expenditure at about €21 billion and Ministers are searching for ways to control the bill, which is rising as a result of the rapid growth in unemployment.
The early childcare supplement is expected to fall victim to the need for savings and while Ministers will be reluctant to tamper with payment rates, they will have to find ways of saving money from the budget of the Department of Social and Family Affairs. Cuts in the funds earmarked for the National Development Plan are also inevitable.
A range of tax increases is also expected in the budget and, in the longer term, decisions will have to be made about ways of widening the tax base to make up for the fact that revenue sources such as stamp duty have collapsed.
Taoiseach Brian Cowen said yesterday that a tax system needs to be devised that is sustainable and inclusive in order to bring balance back to public finances.
The Department of Finance said last night a letter will be issued today to all secretaries general and other agency heads outlining a decision taken by the Cabinet on Sunday to impose an immediate and indefinite public-sector jobs embargo. Exceptions would require the personal sanction of the Minister for Finance.
Official figures published yesterday show the economy shrank dramatically in the closing months of last year, resulting in the steepest decline in gross domestic product (GDP) in 2008 in a quarter of a century. GDP fell 7.5 per cent in real terms in the fourth quarter of last year compared with the fourth quarter of 2007, while gross national product (GNP) fell by 6.7 per cent over the same period, according to new figures from the Central Statistics Office (CSO).
The declines in GNP over three consecutive quarters have taken the economy back to the same size it was three years ago.
Over 2008 as a whole, GDP fell 2.3 per cent, while there was a 3.1 per cent drop in GNP, which excludes the profits of foreign multinationals when calculating economic output. Only in 1956, 1958 and 1983 has the Irish economy recorded contractions of this magnitude.
The CSO’s quarterly national accounts suggest that the economy was weaker in the final three months of the year than had been previously thought. Since the beginning of the year the Irish economy has deteriorated at an even faster pace.
Tax revenues are down 24 per cent on last year, while retail sales are down by 20 per cent.