THE GOVERNMENT has begun the process of borrowing billions from world bond markets to finance the running of the State as it confirmed yesterday that it recorded the largest deficit to date in public finances in 2008.
The National Treasury Management Agency (NTMA) is seeking to raise €3 billion from the sale of Government bonds ahead of a likely rush for loans from other beleaguered economies in the global bond markets.
The NTMA aims to complete the sale of the five-year bonds in the coming days in what will be the first tranche of at least €20 billion that is likely to be borrowed this year to meet its funding needs. This will be the first major test of the State's ability to raise long-term funding following the rapid deterioration in the economy and the bank bailout. It comes at a time of difficult trading conditions in the bond markets.
The difference between the interest rates that will be offered by the Irish Government and other euro zone governments - particularly Germany - will indicate investor confidence in the Irish economy.
The Department of Finance figures show that the State ran an overall deficit of €12.7 billion last year - €1.2 billion worse than the deficit that was expected when Budget 2009 was announced in October, as a sharp rise in unemployment benefit claimants put pressure on social welfare spending and the economy deteriorated further. The deficit is the highest ever in absolute terms and the worst in percentage terms since the early 1980s. 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, as the collapse of the property market saw taxes related to the property sector dry up. VAT receipts were €2.1 billion below target, capital gains tax (CGT) was almost €1.8 billion lower than expected and corporation tax was down €1.6 billion. The intake from VAT has also been dented by a decline in retail sales, as shoppers felt the pinch of recession.
Department of Finance assistant secretary Michael McGrath said the general Government balance (GGB) deficit forecast of 6.5 per cent for 2009 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 rise in the number of unemployment benefit claimants on the Live Register led to an overrun in social welfare spending of €349 million, while changes made to the formula for calculating the amount of money that the Department of Health receives from British health authorities for treatment of British 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 target, despite the implementation of a range of cost-cutting measures across departments announced in July 2008.
The Government was last night urged by Fine Gael to scrap last October's budget in light of the exchequer figures. Fine Gael deputy leader Richard Bruton said the dramatic deterioration in the State's finances since last October showed that Budget 2009 was built on entirely false foundations.
Labour leader Eamon Gilmore described the end-of-year figures as "dire" and said they provided final proof that the Government had created the "greatest fiscal crisis in the history of the State".