Tax revenue behind target

Weak revenues from income tax and VAT - the two biggest categories of tax - are "a concern", Minister for Finance Michael Noonan has said.

The latest Exchequer returns, published by the Department of Finance this afternoon, show that receipts from income tax are running €125 million or 4.2 per cent behind its projections, while VAT receipts are down €179 million, or 5.4 per cent behind target.

VAT receipts in the first three months of the year are also down 3.3 per cent on the same period in 2010, reflecting the ongoing fragility in the economy.

"While the weakness in certain taxes is a concern, the overall Exchequer targets set in the Budget remain valid at this point in the year," Mr Noonan said.

He added that his department was currently updating the economic and fiscal outlook as it prepares for the Government submission of a Stability Programme Update to the European Commission, which is due by the end of April.

The Exchequer deficit at the end of the first quarter of 2011 stood at almost €7.1 billion, which compares to €3.9 billion in the same period last year. The increase in the deficit is primarily due to payments made to Anglo Irish Bank and Irish Nationwide Building Society.

Mr Noonan said the deficit figure was broadly in line with his Department's expectations, meaning Ireland has met the target set under the EU-IMF deal.

So far in 2011, some €7.5 billion has been collected in tax, up 3.7 per cent on last year. However, tax revenues are running 1.8 per cent behind targets set by the Department in January.

Mr Noonan said this was "not a significant shortfall", but that given the importance of income tax and VAT to the economy, the subdued performance of those categories "will need to be closely monitored in the coming months".

Income tax and VAT combined are expected to deliver more than €24.3 billion of the Department's overall tax target of €34.9 billion this year. But a weaker than expected labour market and the knock-on effects on consumer confidence appear to have taken a toll on receipts of both types of tax.

Income tax revenues in the year to date are up almost 10 per cent compared to last year. However, this is mostly because receipts from the Universal Social Charge (USC), which includes the health levy, are now collected as part of income tax. If the USC is excluded, income tax receipts are up just 0.5 per cent on 2010.

At €10.9 billion, overall net Government spending is up 1.7 per cent year-on-year, which is largely due to the reclassification of health levy receipts as income tax.

Net current expenditure at the Department of Health is €311 million or 10 per cent higher than last year as a result.

Mr Noonan said Government spending was being contained, as evidenced by the fact that at the end of March, total net voted expenditure was running 2.3 per cent or €255 million below the department's targets.

The cost of servicing the Exchequer debt in the first quarter arrived at €848 million, up €86 million year-on-year. In addition, a further €577 million from the Capital Services Redemption Account was used to meet debt servicing costs during the quarter.