The Government has recorded an Exchequer surplus for the first three months of 2002 despite a fall in tax revenues. But it relied on the transfer of €885 million to the State coffers from the social insurance fund and the Central Bank to avert a plunge into deficit as the economy weakened.
This allowed the Exchequer finances to show a surplus of €608 million at the end of March. This compares with a €67.3 million deficit reported at the end of February but is almost 60 per cent less than the €1.46 billion surplus reported at the end of the same quarter last year.
The Government has budgeted for a surplus of €170 million by the end of 2002 but analysts suggest this could now prove very difficult to achieve.
The biggest surprise in the first-quarter figures was the extent of the fall-off in income tax revenues. Receipts under this heading were down by 3.8 per cent on the same quarter in 2001 and were a major contributor to the overall decline of 2.75 per cent in tax revenues.
The increase in the number of redundancies and reduced bonus and commission payments to employees in a weakened economy are likely factors driving the reduction in the amount of income tax being collected.
Mr Donal MacNally, second secretary at the Department of Finance, said slippage in income tax receipts continued to be a disappointment but suggested that, with stronger economic growth, the situation could be reversed in the months ahead. Corporation tax receipts were also sharply reduced, a situation attributed in part by the Department of Finance to the timing of Easter this year and to the delay in tax rate changes impacting on the Exchequer finances.
Excise duties were one of the few areas running ahead of target - up 14.4 per cent compared with a Budget forecast of 8.8 per cent - reflecting in part the impact of higher excise taxes introduced in the Budget. VAT receipts were up 3.8 per cent compared with a target of 11 per cent. The Department of Finance suggests that higher VAT rates will be reflected in the Exchequer figures for May.
The Minister for Finance, Mr McCreevy yesterday welcomed the surplus and suggested that a recovery in the economy would help to ensure a strong Exchequer position by year-end. "The general expectation is that the economy is on the road to recovery and that this should be reflected in tax revenues over the remainder of the year. In addition, a number of tax measures in the Budget, including VAT and corporation tax, have yet to be reflected in extra tax revenue."
At the end of March, the Government had reduced the rate of current spending from 22 per cent to 16.5 per cent. This is still ahead of the 14 per cent Budget target and, with tax receipts softening, will continue to cause concern.
Mr MacNally said he expected Government spending to come in on target for the year as a whole.
Employers' lobby IBEC warned that corrective action was needed. "Spending is running at twice the projected rate of growth for this year.
"Current spending increases should be kept below the nominal rate of economic growth in order to maintain sound public finances, provide for much-needed capital spending on infrastructure and support a stable and competitive economy."
Mr Austin Hughes, chief economist at IIB Bank, warned that the huge shortfall in tax revenues suggested economic growth would have to accelerate very rapidly if the Government targets for 2002 were to be met.
He forecasts that tax receipts for the full year will come in at between €500 million and €600 million below expectations. As spending is still above target, he suggests the Exchequer will post a year-end deficit of €750 million - a significant shortfall on the €110 million surplus forecast by the Government.
