Tax revenue targets hit by housing slowdown

Analysis:Tax revenue in 2007 is now expected to fall €1.75 billion short of the target set on budget day, due principally to deteriorating activity levels in the construction sector.

The yield from stamp duties this year is now projected to fall €730 million or 18.6 per cent below budget expectations, according to the White Paper on Receipts and Expenditure published by the Government today .

Tax revenues next year are forecast to rise by just 3.1 per cent, at unchanged tax rates. This indicates that economic growth will decelerate quite steeply during 2008.

Tánaiste and Minister for Finance Brian Cowen has already indicated that he intends to raise day-to-day Government spending by 8 per cent in 2008 and to accelerate public capital spending by 12.5 per cent.

With overall Government spending set to rise quite rapidly in the year ahead, and the growth in tax revenues projected to edge ahead by just over 3 per cent, there is little scope for substantial tax reliefs in next Wednesday's budget.

Total tax receipts this year are now projected at €47.325 billion, some 3.6 per cent lower than the €49.075 billion tax revenue target set in this year's budget.

While tax revenues have lagged budget targets for most of the year, November turned out to be a wicked month for the exchequer.

When the Department of Finance published its pre-budget outlook in October, the tax shortfall for the year was forecast at €925 million. In a little over a month, that shortfall has almost doubled to €1.75 billion.

With taxes falling below expectations, the exchequer deficit for 2007 is now projected at €1.623 billion, more than €1 billion higher than the planned deficit of €546 million announced on budget day.

All of the major taxes, with the exception of income tax, have drifted below the revenue targets set in the 2007 budget, as can be seen from the table.

The table indicates that stamp duties exhibited the largest fall, both in absolute and proportionate terms, relative to their budget targets.

Moreover, the Department of Finance is not optimistic about the prospects for the housing market in 2008. It has forecast that receipts from stamp duties next year will fall by a further €200 million to €2.95 billion.