Government cuts 2009 economic projection by €5bn
THE DETERIORATION in the economy since the start of the year has wiped a further €5 billion from the economic projections made by the Government in January.
Figures published yesterday by the Department of Finance show that tax revenues were down 23 per cent and social welfare payments were up 12 per cent in the first quarter of 2009 compared with the same period last year.
Rising unemployment and plummeting consumer spending pushed the exchequer deficit out to €3.7 billion: more than 10 times the size of the exchequer deficit this time last year.
The Government now expects the economy to decline by 6.75 per cent this year in terms of gross domestic product (GDP) and 7 per cent in terms of gross national product (GNP), which excludes the profits of multinationals.
In the absence of any corrective action by the Government in the emergency budget next Tuesday, Department of Finance officials said the general Government deficit was on track to be in the order of 12.75 per cent of GDP.
Minister for Finance Brian Lenihan said the figures were “unsustainable” and reflected “the very weak international situation and the very significant domestic developments”, in which tax revenues had fallen back to levels seen in the first half of this decade.
The Minister reiterated the Government’s statement that next week’s budget would chart a multi-year “course of correction” to restore the deficit to below 3 per cent of GDP by 2013.
The quarterly exchequer returns reveal that tax receipts in the first three months of the year were €8.5 billion, down 23 per cent or €2.6 billion on the first quarter of 2008, when tax revenues had not yet begun to falter.
The percentage decline in tax revenues in March alone, at 22 per cent, was lower than in February, when a collapse in capital gains tax receipts dragged down revenues. The department expects tax revenues to be down 17 per cent for 2009 as a whole compared to 2008.
As part of its pre-budget working estimates, it said it still expected tax revenues to come in at €34 billion this year, while the exchequer borrowing requirement for the year would be €23 billion.
In January, the Government made an exchequer balance projection of €18 billion and said it expected the general Government deficit to be 9.5 per cent of GDP.
“That’s a €5 billion hole that has appeared in just 10 weeks. This shows just how steep a trajectory our economy is now on,” said Labour finance spokeswoman Joan Burton.
The department said the pre-budget estimate for gross voted total expenditure in 2009 was €65.4 million, up 4.8 per cent year-on-year, before any new policy measures are introduced. In net terms, expenditure will be €49.4 million.
As consumers stopped spending, VAT receipts came in €829 million or 18 per cent lower than last year, while a collapse in car sales was largely responsible for a €433 million decline in excise duties.
Despite the revenue from the income levy, income tax is down 7 per cent or more than €200 million on the same period last year, due to wage cuts and job losses. Receipts from PRSI and the health levy are also slipping.
Total voted expenditure by the Government is 6 per cent ahead of last year, despite spending cutbacks, due to the swelling cost of unemployment benefits. Spending at the Department of Social and Family Affairs is up 12 per cent or more than €260 million on 2008.
The Department of Social and Family Affairs has revised its estimate of the cost of paying benefits to every 1,000 people on the Live Register from €11 million to €13 million.
An additional €8 million in tax revenues is also lost for every 1,000 people who lose their jobs.
The unemployment rate reached 11 per cent in March.