Significant shortfall in tax revenues expected for the year

Despite a boost from benchmarking payments, total tax revenues by August were some €206 million behind target with the Department of Finance sticking to its prediction of €500 million shortfall by year's end, writes Cliff Taylor, Economics Editor

Tax revenues were given a boost by income tax on benchmarking payments last month, according to the latest Exchequer figures.

A significant tax shortfall, however, is still expected for the year and the outlook remains for a difficult budget.

By the end of August total tax receipts were some €206 million behind target for the period, the Department of Finance estimates.

The Department is sticking with its prediction that revenues for the full year will be about €500 million below target.

It is likely to comment on this target in more detail when the September figures are published early next month.

Total tax revenue collected in the first eight months was €19,383 billion, 3 per cent up on the same period last year compared to a Budget target increase of 8 per cent for the full year.

Department spending at< €18.755 billion was just 5.4 per cent ahead of last year and is running 7 per cent below what was expected for the January to August period at the start of the year, due to a sharp fall-off in capital spending.

The Exchequer finances showed a deficit of spending over revenue was €892 million at the end of August, compared to a surplus of €952 million at the same time last year, a measure of the economic deterioration over the past year.

For the second month in a row, the figures show some modest improvement in the revenue trend.

Taxes were well below budget in the early months of the year, but for the last two months the total revenue collected has been roughly in line with the Revenue Commissioners' expectations at the start of the year.

It is not yet clear, however, how much of the improvement is due to the one-off benefits to the Exchequer from the payment of backdated benchmarking money to public servants.

Many groups received the first 25 per cent of the award - backdated to December 2001 - over the past couple of months.

This gave a bounce to income tax receipts, now running roughly on Budget according to the Department.

The Department says it is not possible to estimate accurately the impact on benchmarking, but it may account for most of the €100 million improvement in the income tax trend during the month.

The impact of the Special Savings Incentive Account (SSIA)payments - deducted by the Department from tax receipts - also complicates year-on-year comparisons.

Much will now depend on the performance of income tax over the coming months and particularly the key November period when self-employed returns are paid.

While the income tax trend has improved somewhat, spending taxes have softened. VAT receipts are now running €57 million below Budget, perhaps due to some easing in consumer spending over the summer.Excise duties - which have been weak all year - are €172 million down.

The main plus for the Exchequer is stamp duties, running €196 million ahead of budget due mainly to the booming property market.

Spending continues to run below expected levels. This is partly due to a fall-off in capital spending on investment projects, which at €2,390 million in the first eight months was 13.2 per cent down on the same period last year.

Total spending, including voted and non-voted items was €21.645 billion in the first eight months of this year, up nearly 10 per cent on the €19.693 billion in the same period last year.

Commenting on the figures last night, Mr Austin Hughes, chief economist at IIB Bank, said they suggested that the economy was " edging forward rather than sliding backwards."

Spending was surprisingly low, given the benchmarking payments, he said,

Davy stockbrokers said it appeared that infrastructure spending might be suffering in order to avoid having to cut day-to-day spending.