Tax revenues have continued to decline sharply, putting further pressure on the Government's spending plans ahead of the Budget, the latest Exchequer figures have revealed.
Following a rapid decline in tax revenues in September, the Department of Finance has had to adjust its target for the surplus for the third consecutive time. It is now predicting that the Exchequer surplus will reach £1 billion (€1.27 billion) this year compared with an original Budget target of £2.5 billion.
The £1.5 billion shortfall in the Department's predictions is the result of foot-and-mouth, a slowdown in tourism and generally slower economic growth than expected, the second secretary at the Department, Mr Donal MacNally said yesterday.
Tax revenue growth fell to just 2.2 per cent in the nine months to the end of September and actually fell in the three months from June by 4.5 per cent compared with the same period a year earlier. This compares with initial predictions for a 12.5 per cent growth in revenues.
The Department is now predicting that this growth will pick up to 15 per cent in the final three months of the year. Mr MacNally said this optimistic forecast was a best-case scenario. The Department is pinning its hopes on a pick-up in self-employed tax receipts relating to last year and a pick-up in excise duties on increased tobacco sales as well as revenues from the voluntary disclosure scheme relating to offshore accounts which has a deadline of mid-November.
The Exchequer surplus is running at £2,311 million in the first nine months of the year. That equates to a general Government surplus in European terms - including a likely £765 million payment to the pension fund - of 2.5 per cent of GDP.
Tax revenues are running short across most heads with the exception of capital gains tax which is a massive 38 per cent ahead and corporation tax which the Department is still predicting will be around its 10 per cent forecasts.
Income tax, however, is only up 3.6 per cent compared with a Budget target of 8.4 per cent. According to Mr MacNally, this is due to a fall-off in overtime and bonus payments. However, according to Dr Dan McLaughlin, chief economist at Bank of Ireland, it is also likely to reflect job losses in well-paying sectors and job creation in lower-paying areas.
VAT is only up 6.7 per cent compared with a Budget target of 17.7 per cent while excise duties are down 7.4 per cent compared with a target of 12 per cent. This is mostly due to lower-than-expected car sales.
Spending is continuing to run around estimated levels at 18.9 per cent in terms of day to day spending, just below the target in the revised estimates figures of 21 per cent. Capital spending is also around target with a pick-up expected over the rest of the year.
According to Dr McLaughlin, the real problem will be next year. "Even if revenues rise by 5 per cent and spending is held the same as 2001 you get a deficit," he warned. "The Government may need to be ready to target that."
Fine Gael deputy leader Mr Jim Mitchell said the Exchequer figures could be worse. He added that now is "not the time to pull back on capital spending which, if anything, should be brought forward. This would help to minimise the downturn and, in turn, lead to additional economic growth in a few years."
IBEC's director of economic affairs Mr Brian Geoghegan said the figures must be greeted with action. "Discipline must be exercised on current spending to prevent a drift into the bad old days of living on ever-growing deficits year on year and private sector confidence must be restored," he said.
