TAX RECEIPTS were €600 million or 5.1 per cent below Budget projections in the first three months of this year, according to exchequer returns for the first quarter published yesterday by the Department of Finance, writes PAUL TANSEY, Economics Editor.
Revenue from capital gains tax (CGT) undershot its target by €311 million while value added tax (VAT) delivered €253 million less than expected during the first quarter. The €600 million tax shortfall is unlikely to be made up during the course of the year. "At this stage, it is not expected that this tax shortfall, particularly in CGT, will be recouped later in the year," said Tánaiste and Minister for Finance Brian Cowen yesterday.
The weak yields from CGT reflected "more adverse conditions in equity and property markets", Mr Cowen added.
The failure of tax receipts to meet expectations pushed the exchequer into the red in the first quarter of 2008. Over the past three months, the exchequer ran a deficit of €354 million. This stands in stark contrast to the exchequer surplus of €1,861 million generated in the first quarter of 2007.
Public spending was largely in line with projections during the first quarter of this year. However, the Health Service Executive (HSE) proved an exception.
The HSE was allocated an overall budget of almost €15 billion this year. In the first three months of the year, its spending exceeded budgeted targets by €83 million.
More than €50 million of this budgetary overrun occurred during the month of March.
With the tax shortfall in the first quarter of the year deemed largely irrecoverable, Mr Cowen yesterday reiterated the need for public spending to hold to Budget targets.
"It is crucial that the agreed Budget spending limits are adhered to this year," he said.
However, the exchequer returns for the first quarter of the year are not as bad as they might appear at first. Tax receipts during January were €36 million ahead of target.
However, February proved a wicked month, with tax revenues falling €552 million below Department of Finance expectations, principally due to weak CGT receipts.
During March, the tax revenue shortfall amounted to €84 million. While last month's performance was poor, it represented a signal improvement on the February outturn.
During March, taxes on spending - VAT, stamp and excise duties - yielded €112 million less than expected, indicating a weakening of household spending within the economy. The take from capital taxes undershot budget projections by €57 million.
However, taxes on income - personal and corporate - produced €75 million more than expected, indicating continuing high levels of employment and incomes within the economy. With other small adjustments, the downward deviation from revenue profiles for March was contained to €84 million.
The deterioration in tax yields that was evident in February was arrested by March and a shift in the Government's fiscal stance seems unlikely at present. As Mr Cowen put it yesterday: "I believe the current situation is manageable given the strong position of the public finances and our low debt-to-GDP ratio."