Data shows public finances stabilising

THE PUBLIC finances stabilised in May, but the amount of income tax collected by the Government weakened further, the latest Exchequer returns data shows.

The Exchequer deficit at the end of May was €7.8 billion, compared to €10.5 billion at the end of May 2009, according to figures published yesterday by the Department of Finance.

Tax receipts slipped behind target during the month. The Government has collected €12.1 billion in tax in the first five months of the year, down €1.4 billion or 10.4 per cent on the same period last year. This year-on-year decline has narrowed slightly since April.

However, income tax receipts now lag almost 5 per cent – or a sum of €219 million – behind targets set by the Government earlier this year, indicating the ongoing fragility in the economy.

This shortfall was slightly offset by a small surplus in VAT and corporation tax receipts. Overall, tax receipts are now 1.2 per cent behind target.

The department said the deficit was “generally in line with expectations” and meant its targets for 2010 remained valid.

The year-on-year reduction in the deficit is due largely to the frontloading of this year’s payment to the National Pensions Reserve Fund (NPRF). A sum of €3 billion had been paid into the NPRF by the end of May 2009, but no such payment was due this year.

Responding to the figures, Fine Gael finance spokesman Richard Bruton said the Exchequer deficit was “only half of the story”, as the bailout of Anglo Irish Bank had driven Ireland to the top of the EU’s deficit league.

“In the past quarter, the Minister has committed an additional €10.3 billion to Anglo Irish Bank which will keep Ireland in the unenviable position of having the worst borrowing level in Europe in 2010,” Mr Bruton said.

The Fine Gael deputy leader queried what he said was “the startling collapse” in capital spending.

Capital expenditure – or spending on infrastructure projects – is almost 20 per cent or €390 million below target and more than 35 per cent or €891 million below last year’s figure.

The Department of Finance said capital spending was coming in below target due to “timing issues”.

However, Mr Bruton questioned whether the Government was “surreptitiously cutting real capital spending in order to make the Anglo recapitalisation look a bit better in the final accounts”.

He said if this was the case, it was “sacrificing real investment in projects that could drive economic recovery”.

Ulster Bank’s economists Simon Barry and Lynsey Clemenger said the Government’s explanation was “not entirely unreasonable” given the often erratic payments on large projects. “However, it is somewhat strange that such a large shortfall has emerged so early in the year,” the Ulster Bank economists added.

Current expenditure – or day-to-day spending by the State – is broadly in line with expectations, coming in just €26 million or 0.2 per cent above target. At €16.2 billion, current spending is down 5 per cent or €851 million on the same period in 2009.

Total net voted expenditure by Government departments at the end of May was €17.8 billion, a sum of €1.7 billion or 8.9 per cent below the level of spending recorded in the same period in 2009.

Business group Ibec said the latest update on public finances gave “mixed signals” on the state of the Irish economy, but that it was likely that tax receipts would improve in the coming months.

The Government is aiming to collect about €31 billion in tax during 2010 as a whole – a 6 per cent decline on 2009’s tax haul.