THE PUBLIC finances are showing little sign of recovery with tax receipts falling by 5.5 per cent last month compared to July a year ago.
Exchequer returns, released yesterday by the Department of Finance, add to pressure on the Government to frame a tough budget at the end of the year.
Income tax remained the biggest weakness in the numbers, with revenue from this source falling by 9 per cent on the same month in 2009. This was the largest such drop since February.
Although the rate of decline in overall tax receipts was considerably lower than the average since the economy fell into recession, it suggests, at best, that the recovery remained weak going into the second half of the year.
A survey of manufacturers in July, published on Tuesday, also points to the same conclusion.
The cumulative exchequer figures for the first seven months of the year have direct implications for the 2011 budget.
Tax revenues, which provide the most timely indicator of the economy’s health, were €250 million below the Government’s expectation for this point of the year. It is increasingly unlikely that the gap will be closed over the remaining five months of 2010.
More positively, expenditure targets are on course to be met, as Government spending curbs have been adhered to, capital outlays remain far below budget, and the cost of servicing the growing national debt was lower than anticipated in the January-July period.
However, based on trends in both revenue and spending over the first seven months of the year, the underlying exchequer deficit is likely to be at least as large as that anticipated by the Government at year’s end.
That figure is officially projected to come in at €22 billion.
In the January-July period, the accumulated deficit stood at just over €10 billion.
The deficit is usually larger in the second half of the year owing to the timing of spending outlays and tax revenue flows.
While political considerations weigh increasingly on the Government as the budget approaches, yesterday’s exchequer figures will ensure that economic and fiscal constraints will make the job of framing the overall package no easier.
The Government has already prepared the ground for an unforgiving budget, but Taoiseach Brian Cowen last month pointed towards cuts in spending rather than new taxes.
Monthly exchequer figures are volatile and caution is needed in their interpretation, but the July income tax figures point to particular weakness in the labour market.
Figures on the numbers claiming unemployment benefit will be released later today, offering an indication of conditions in the jobs market at the start of the second half of the year.
VAT returns in July performed better than income tax, with a small 2.6 per cent decline on the same month a year earlier and the cumulative January-July returns coming in almost exactly on forecast.
The Government will take some comfort, meanwhile, from yesterday’s new bank lending figures from the Central Bank, which suggest that companies may be finding it easier to access credit.
In June, net new lending to businesses stood at €424 million, following a similar figure in May. In each of the previous 10 months, the figure had been negative, indicating that companies in that period were securing less in new loans than they were paying back.
Households, by contrast, continued to reduce the total size of borrowings in June.
According to the Central Bank figures, households repaid €904 million more than they received in new lending in June.
The was the fourth largest net monthly repayment since the figures were first compiled in January 2003.