Tougher budget likely as tax take €2bn lower

THE DECEMBER budget could be tougher than expected after the Government admitted yesterday that tax revenues collected this year will be €2 billion lower than it had predicted in April.

A €965 million shortfall in the amount of VAT and income tax collected by the Government will not be recovered before the end of the year and is instead likely to double, Minister for Finance Brian Lenihan said.

This means that instead of collecting an anticipated €34.4 billion in tax receipts in 2009, the Department of Finance’s new target is about €32.4 billion.

The revised projections mean the Government will now have to borrow €2 billion more than it expected to finance the running of the State.

At €23.7 billion, the amount of tax collected so far this year is 16.8 per cent down on the same period in 2008, according to the latest exchequer returns. Taxes are now back to levels last seen in 2003.

The Department of Finance expects that VAT receipts in November, the next big month for VAT collection, will also be poor, while it is forecasting that income tax collected from self-assessed taxpayers in October and November will mirror the declining trends in PAYE receipts.

The latest figures, described by economists as “awful” and “bleak”, point to further cuts in Government expenditure in the next budget.

“The weakness in taxation receipts reinforces the need for expenditure reductions to stabilise the position in the public finances,” Mr Lenihan said. “We must reduce public spending to restore sustainability over the medium term and return to the path of economic growth.”

The exchequer deficit stood at €20.1 billion at the end of September. The deficit is €10.8 billion greater than it was at the same point in 2008. This year-on-year deterioration comprises the €4.8 billion decline in tax receipts, a €4 billion payment to Anglo Irish Bank and €1.7 billion in respect of a pre-funding of the annual contribution to the National Pensions Reserve Fund.

Fine Gael deputy leader Richard Bruton said the exchequer figures “confirm that the Government is fiddling while Rome burns” and added that the disappointing September figures had “dashed any hopes that tax revenue had stabilised”.

Labour Party deputy leader Joan Burton said the Government’s policies were self-defeating.

“The more they slash spending and hike taxes, the bigger the deficit gets because they are taking billions out of the economy at a time when demand is already chronically weak,” she said. “In fact, Mr Lenihan has today formally acknowledged that April’s emergency budget was a failure.”

The Department of Finance said there would be some “savings” as a result of the lower than expected number of unemployment benefit claimants this year.