Receipts hit by property slowdown

Analysis: As the events of the past few days have shown, a week is a long time in politics. As yesterday's Exchequer returns show, a month can be a long time in Government finances.

Despite their continued strength in the first nine months of the year, yesterday's Exchequer figures offer the faintest of suggestions that two intriguing changes may be occurring in the domestic economy.

The first is that the property market may be slowing down. The second is that this is beginning to affect the Government's tax take.

Comparing the tax take in the year to September this year with the same period in 2005, no one can deny that the growth has been anything but impressive. At about €29.7 billion, it is €3.2 billion up on last year, an increase of 12.2 per cent. Comparing the figure against what was expected when the last budget was announced, it represents an improvement of €1.8 billion.

On the spending side the news is, on the face of it, also good. Spending growth is running at a relatively high 9.8 per cent year on year, but this compares with an expected increase of 12.9 per cent.

Compared to an expected deficit of €2.9 billion for the full year and with only two months to go before the budget, the Government is running a deficit of just €136 million.

Good news, right? The answer lies in the "news" content of yesterday's figures. News, as we say in newspapers, is what people don't know already. As far as yesterday's figures are concerned, what matters is the factors behind the phenomenal growth in tax revenues and how that growth is changing.

This week came evidence from Sherry FitzGerald that the rate of increase in house prices began to slow in September.

As if to confirm the finding, yesterday's revenue figures show that the annual rate of growth in capital gains tax slowed from a staggering 114 per cent in the month of August to just 25 per cent in September.

For capital acquisitions tax, the slowdown was from 120 per cent growth in August to 52 per cent in September. Turning to stamp duty receipts, the slowdown was more modest, from 36.6 per cent in August to 33.4 per cent in September.

The profound impact of these tax heads on the overall Government financial position is shown by one stark fact: They account for €1 billion of the €1.8 billion overshoot in tax revenues. And this is where the real news value of yesterday's figures becomes apparent: kicking off in January at a very healthy rate of 22 per cent, annual growth in tax revenues had slowed to 19 per cent in the year to March. Growth in the first six months of the year came in at 13.6 per cent.

So while on the face of it excellent, growth in the year to September, 12.2 per cent, represents a marked slowdown in the momentum of tax revenue growth. That slowdown is being driven by a slowdown in the property market that has only just commenced.

When they emerge from the trials and tribulations of this week's political events, Bertie Ahern and Brian Cowen will be hoping that that slowdown doesn't gain any serious momentum before next year's General Election.